Is my money in E-Trade (or any stock brokerage) protected?

Question

I know that let's say, I have $150,000 cash deposited in a bank, and if that bank goes BK, only $100,000 is insured by the federal government (FDIC). The other $50,000 can likely be lost. So the safe thing to do is deposit $75,000 cash each in 2 separate banks.

Now, the same question goes to E-Trade (or any stock brokerage).

Question #1:

If I have a lot of cash in E-Trade stock account, should I be spreading that cash out by opening other accounts at, let's say, Schwab, Scottrade, etc? By the way, how much am I protected should my stock brokerage go BK?

Question #2:

Let's say I have $300,000 cash in my E-Trade stock account. Then, I used all of my $300,000 cash and bought shares of CSCO, TXN, etc. So I have no more cash left in my E-Trade account. Now, I only own shares of CSCO, TXN, etc. Then, should E-Trade go BK, what happens to all of my shares of CSCO and TXN?

Thanks in advance.

Answer 1

Best Answer - Chosen by Voters

Etrade is member of SIPC:

Securities Investor Protection Corporation (SIPC)
A non-profit membership corporation established by Congress which insures securities and cash in customer accounts up to $500,000 (up to $100,000 on cash) in the event of brokerage bankruptcy.

SIPC Protection for E*TRADE Securities Brokerage Accounts
E*TRADE Securities LLC, Member of SIPC, which protects securities of its members up to $500,000 (including $100,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org.

E*TRADE Clearing LLC has purchased from London insurers additional protection with an aggregate limit of $600 million to pay amounts in addition to those returned in a SIPC liquidation, and providing that (1) the combined return from the Trustee distributions, SIPC and London to any customer does not exceed $150 million, and (2) as a sub limit, return of cash to any customer by London does not exceed $900,000. This coverage does not protect against loss of the market value of securities. Details are available on request.

SIPC coverage is not the same as the insurance on bank accounts provided by the Federal Deposit Insurance Corporation (FDIC). It does not protect investors against a decline in the market value of securities. SIPC generally protects customers against the physical loss of securities if the broker/dealer holding the securities for the customer fails.

What SIPC Covers... What it Does Not
The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC.

Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.

It is important to recognize that SIPC does not work the same way as the Federal Deposit Insurance Corporation in terms of blanket protection of losses. For more information click here.

Why We Are NOT the FDIC
"Insurance" for investment fraud does not exist in the U.S. The Federal Trade Commission, Federal Bureau of Investigation, state securities regulators and other experts have estimated that investment fraud in the U.S. ranges from $10-$40 billion a year. In the case of microcap stock fraud, the toll on investors has been estimated as $1-3 billion annually.

With a reserve of slightly more than $1 billion, SIPC could not keep its doors open for long if its purpose was to compensate all victims in the event of loss due to investment fraud.

It is important to understand that SIPC is not the securities world equivalent of FDIC–the Federal Deposit Insurance Corporation. Congress specifically considered creating a Federal Broker-Dealer Insurance Corporation, but lawmakers wisely concluded that such a designation would be both misleading and out of step in the risk-based investment marketplace that is so different from the world of banking.

Etrade posted this 12 Nov:

This is a challenging time for the financial services industry. Bad news in the credit, housing, and stock markets continues to dominate and E*TRADE is not immune to these market conditions.

However, you, our customers, should know that we continue to be well capitalized by regulatory standards. As a matter of fact, we could absorb an immediate write down in excess of $1 billion and still remain well capitalized. Nobody knows for certain what the ultimate impact will be from these markets, but it is our expectation that news in the market will get worse before it gets better and, armed with these expectations, we are taking prudent measures to effectively manage the company's balance sheet.

We will continue to earn your confidence, providing state-of-the-art asset protection, including E*TRADE's Complete Protection Guarantee, SIPC Protection for E*TRADE Securities customers and FDIC Insurance for E*TRADE Bank customers.

Source(s):

https://us.etrade.com/e/t/estation/glossaryterm?id=3398
https://us.etrade.com/e/t/welcome/welstatic?gxml=brk_insurance.html
http://www.sipc.org/how/covers.cfm
http://www.sipc.org/who/notfdic.cfm

Answer 2

100 grand fdic deposit insurance federal protection... any more youre an idiot. make a new account.

Answer 3

etrade is safe for millions of dollars. I forget the exact amount - perhaps as high as ten million. Of course this is cash only. No guarentees on value of securities.

Your money is a lot safer in etrade than in a bank.

Answer 4

Brokerage cash accounts are protected for up to $100,000 if they are protected by the FDIC. (Money market funds are technically a FUND and not protected, check your fine print. Brokerage products are not insured.)

Stocks are held with transfer agents via the brokerage firms. Once you own the stocks you own them - regardless of whether or not your brokerage firm remains in business. Just keep your transaction paperwork. (Your book shares are registered with the transfer agent.)

Source(s):

e*trade: Member FINRA/SIPC/FDIC
Schwab: Member FDIC/FINRA and SIPC
Scott Trade: Member FINRA and SIPC
http://www.sec.gov/answers/sipc.htm
http://www.sipc.org/who/database.cfm
http://www.pueblo.gsa.gov/cic_text/money…
read your fine print.

Answer 5

Not one single penny of your money in a brokerage account is "protected". It doesn't need to be. Brokerages don't go bankrupt, if they stop doing business, their assets (you) are simply transferred to another brokerage.

Your shares are owned by YOU, not by your broker, so if eTrade were to go into bankruptcy, the executor would just send you paper shares. But it ain't gonna happen.

And if you have $150,000 in cash anywhere, unless you have a net worth north of $1,000,000 you're nuts...cash simply doesn't work very hard to earn you anything when it's just sitting in a bank!

Answer 6

If that is true, then why does the SIPC info page say that securities are protected up to $500,000. What is this limit for?

Answer 7

I believe FDIC only insures a single individual not a single account to 100K. If you had 75K in 2 separate bank accounts and both banks went under, you are only insured up to 100K of total loss.