How SIPC insurance protects against the loss of cash and securities

Trust makes the world go round, and the same goes for markets. So when more than a million customers place their trust in us—along with $63 billion in assets—we don’t take it lightly. We put multiple measures in place to help safeguard their assets.

Beyond these, investors also benefit from one industry-wide backstop—SIPC insurance. Though rarely called upon, it reinforces confidence across markets. So let’s break down what it is, why it matters, and why you’ll likely never need it. An explanatory brochure is also available upon request or at sipc.org.

SIPC insurance comes into play when securities go missing

One of the biggest misconceptions about this type of insurance relates to what it actually safeguards you from. It doesn’t protect against market losses (wouldn’t that be nice). Instead, it insures against broker failure. SIPC insurance protects against the loss of cash and securities held by a customer at a financially-troubled SIPC-member broker.

Congress created it after the “paperwork crunch” crisis of the late 1960s, when outdated technology and a surge in trading volume led to backlogs at several brokers. When a market crash then caused many of those same brokers to go belly-up, they weren’t able to account for all their customers’ securities.

So similar to when the bank failures of the Great Depression led to FDIC insurance, legislators created the SIPC and its related guarantee to restore confidence in the financial system. Unlike the FDIC and banks, however, all brokers (including Betterment) are required to be SIPC members.

How SIPC insurance works

Okay, let’s talk numbers. SIPC insurance protects securities customers of its members up to $500,000 (including $250,000 for claims for cash).

But crucially, this limit applies to each account with a “separate capacity” at each SIPC-member broker. Examples of separate capacities include:

• individual accounts
• joint accounts
• accounts for a corporation
• accounts for a trust created under state law
• IRAs
• Roth IRAs
• accounts held by an executor for an estate
• accounts held by a guardian for a ward or minor

In the event that a broker goes bankrupt, a judge appoints a trustee to sort through their books and distribute assets back to their clients. SIPC insurance only comes into play if assets can’t be recovered and returned to their owners.

Why it’s highly unlikely you’ll need it

As important as this protection is, chances are, you won’t actually need it.

That’s because brokers are required to abide by a series of regulations that seek to stabilize and strengthen securities markets. They must segregate their own assets from their clients’ assets, for example, making it less likely that securities get lost in the fray. This separation is also important because it protects your securities from creditors.

Because of guardrails like these, SIPC proceedings have been increasingly rare since the dust settled from the “paperwork crunch” of the late 60s, in spite of there having been roughly 40,000 brokers and SIPC members since its inception. Usage has faded even more in the recent past, with no cases in the last 7 years, and fewer than two cases per year since the turn of the century.

Invest with confidence at Betterment

Every investment carries some level of risk—but that risk should come from market movement, not from your broker. That’s why the brokerage industry operates under clear safeguards: firms must segregate customer assets, maintain sufficient capital, and undergo regular oversight. Betterment follows these same standards—helping you stay focused on your goals, backed by the same protections that support confidence across U.S. markets.