Is Your Brokerage Account Safe?

Most investors have several layers of protection if the firm that holds their stocks, bonds and other assets goes under.

Please can you clarify what SIPC does? I called my brokerage firm to ask about the safety of my investment account, which is not covered by FDIC. They told me not to worry because my securities and cash are covered by SIPC. What does SIPC do if my brokerage firm goes under?

The Securities Investor Protection Corp. (SIPC) helps protect account holders if a brokerage firm goes bust. It's an important safety net that can help you worry less about the stability of your brokerage firm. But there are some key differences between how SIPC and the Federal Deposit Insurance Corp. provide protection, and remember that while SIPC can come to the rescue in cases of bankruptcy or fraud, it does not protect you against market losses.

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Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.