Transcripts

"Money File"-The SIPC Greenback Guardian

SUSIE GHARIB: In the "Money File" tonight, investor protection. Here's Eric Schurenberg, managing editor at Money Magazine.

ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: If your bank fails, you know the FDIC will protect you. But what if your brokerage goes under? The answer is, relax. Brokerages have custody of your money, but unlike banks, they don't use it for their own purpose. That makes your risk far lower. And even if a broker fails, there is a safety net not unlike the FDIC. That safety net is the Securities Investor Protection Corporation, or SIPC. It protects stocks, bonds, and mutual funds worth up to $500,000. Look for the words "member SIPC" on your brokerage's Web site to make sure it offers the protection. Now unlike the government-sponsored FDIC, SIPC is a private nonprofit funded by member firms. While that may not sound as safe, there are a couple of reasons to feel confident. First, if it's just a case of the business going sour, SIPC might not even need to get involved. The broker itself might transfer your holdings to another firm. If it's fraud or bad record-keeping, SIPC would replace the missing securities up to that $500,000. Now included in the half mil is coverage for up to 100 grand in cash. Not covered are futures contracts or other assets not registered with the SEC. Also, remember that SIPC replaces lost securities, not lost value. So if your broker runs off with your 100 shares of Microsoft (MSFT), SIPC will replace the shares at the current market value. It doesn't matter if you paid more for them. The bottom line, worry about the markets, but not your brokerage. And these days, one less thing to be concerned about is one more thing to be grateful for. I'm Eric Schurenberg.