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Written by Cari Scribner on January 22, 2021
Category: 
FTC Disclosure

Is Robinhood SIPC And FDIC Insured?

In the highly unlikely event that any online brokers go through financial trouble, safety nets are in place to protect your money.

As an investor, you may wonder if your funds will be covered in situations such as the platform going bankrupt. Could your investments just disappear overnight?

Robinhood provides full insurance coverage against this and other potential scenarios through the Securities Investment Protection Corporation (SIPC) and also through the Federal Deposit Insurance Corporation (FDIC).

However, if you want more details on what is and is not covered, keep reading!

About Robinhood

Robinhood is known as the platform that launched commission-free trading. It opens doors for beginning investors looking to learn about the market, establish a trading strategy and start investing without paying any initial fees.

Robinhood does not charge its members any trading fees whatsoever. There is not a minimum initial account balance, and bank transfers are free. These features make it a great entry point for people looking to start out small and work their way up in the world of investing.

Its creators designed this platform with beginners in mind. It is meant to be one of the simplest trading platforms out there. As a result, intermediate to advanced traders often find this platform to be lacking when it comes to research tools, order types and technical indicators.

Robinhod SIPC Coverage

The SIPC was created to protect customers who hold cash and securities such as stocks, bonds or mutual funds in an account at SIPC-member brokerage firms.

Robinhood is a member of the SIPC.

SIPC coverage provides:

  • Up to $500,000 in total coverage per customer for lost or missing assets of cash and/or securities from a customer’s accounts held at the brokerage
  • Up to $250,000 of that total can be applied to protect cash in a customer’s account that is not yet invested in securities

In addition, the SIPC gives you protection in case of unauthorized trading or theft from your  account.

If Robinhood was to financially fail and go into bankruptcy, they are required to transfer all your money to another brokerage with SIPC coverage.

The amount of your claim will be the value of the cash and securities in your account on the date the SIPC files the court application for liquidation. However, they will deduct any debt you owe Robinhood, such as margin loans.

Robinhood Free Training

We put together a free 30 minute video training that walks you through the entire process, step by step. This training will help you get up and running in no time at all.

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What SIPC Does Not Cover

That being said, SIPC is not an "end all be all." Here's what is not covered:

  • Claims against bad or inappropriate investment advice
  • Losses due to account hacking, unless the firm was forced into liquidation due to the hack

There are also more layers of protection that include:

  • Rules for brokerage firms to keep customer assets segregated in separate accounts from the firm’s own money
  • Requirements to have a minimum amount of liquid assets on hand, which serves as an emergency fund for a brokerage platform

Portfolio Losses

Always keep in mind that the SIPC does not cover any losses you bear when the value of your investments dips.

Markets are volatile and change at warp speed. A single day could bring a roller coaster of ups and downs in the total market value of your investments.

You make your own individual (hopefully wise) trading choices, and as with any investing option, this carries considerable risk. There is zero financial coverage for your losses.

robinhood customize

Robinhood Cryptocurrency

Robinhood allows you to trade stocks, ETFs, options and crypto.

Robinhood members need to be aware their cryptocurrency investments through Robinhood Crypto are not protected by the SIPC or the FDIC.

No crypto investments have federal insurance as of now.

Robinhood FDIC Insurance

The FDIC sells insurance policies to banks and online platforms that covers member’s checking and savings accounts on the slim chance that they fail.

The FDIC insures deposits only. It does not insure securities, mutual funds, or similar types of investments that banks or online platforms offer.

The corporation covers individual cash reserve accounts up to $1,000,000.00, and $2,000,000 in joint accounts.

That means if you have up to that amount in your account and Robinhood shuts down, the FDIC covers you from any losses you suffered.

As with the SIPC, the FDIC also does not cover any market losses you suffer in your trading decisions!

Always remember that you are responsible for monitoring your total assets in Robinhood to make sure FDIC insurance limits are not exceeded. This could mean some of your funds are uninsured.

Conclusion

Your stock and ETF investments are covered under SIPC insurance, as well as the cash in your brokerage account for purchasing assets.

If you use the online banking services offered by Robinhood, these are covered by FDIC insurance. 

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Article written by Cari Scribner
Cari Scribner is a career journalist with 20 year’s experience writing for newspapers and magazines. Now a freelance writer, she is also a published fiction writer with more than 15 short stories in literary mags. She recently completed a novel that is on the desk for consideration at two publishing houses. She lives with her two small dogs, Miloh and Lucy, in Upstate NY.

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