Fidelity seems to disagree with your conclusion, in this PDF they say(bottom of page 13):But SIPC doesn't exactly "insure cash." This is a tricky point and one that is confusing. It may have confused Robinhood for moment when they briefly unveiling what the incorrectly called "savings accounts" and said they were "insured by the SIPC."...In this case, with cash, the SIPC limit(s) and the FDIC limit(s) are identical so I'd argue the gears don't matter with Fidelity in this case. This is clearly different than the fintech players, where they are neither SIPC or FDIC insured when all the extra gears are being exercised.
Yes, I know SIPC is different from FDIC, but the SIPC is very clear they are very happy to insure up to 250k of cash...
What the SIPC insures is (verbatim from the SIPC website)In other words, these are the brokerage non-interest-bearing "cash accounts," largely invisible to and unknown by ordinary retail customers.SIPC protects cash in a brokerage firm account from the sale of or for the purchase of securities.
Imagine the days before fintech pseudo-banks and brokerage cash management accounts that automatically distributing large deposits among multiple banks for increased FDIC insurance. In those days, "cash" was either in the brokerage cash account, being held for a short period of time pending a transaction, and protected by the SIPC. Or it was in a money market mutual fund, also protected by the SIPC.
But these novel, innovative services have created systems that involve "brokerages" with "banks" that result in customers' money being in places that are not the brokerage's cash account, not money market mutual funds within the brokerage, and not within the FDIC member bank. It's unclear whether either the SIPC or the FDIC actually protects it, or whether they should protect it.
I think it is protected only by ordinary business law, that neither the SIPC nor the FDIC have any role, and that if your money is lost your recourse is to sue the company that lost it. But that's just a guess.
That's very clear language to me that anytime it's not FDIC insured, it's SIPC insured. This is in their disclosure statement, so you know lawyers were involved with this statement. I'm definitely not an expert in SIPC, FDIC and security law. Perhaps the only way to truly know is when it's tested. I just hope I'm not alive if/when that happens. If this language ever has to be tested something very bad happened.Your Cash Balance is only eligible for FDIC insurance once it becomes a Program Deposit held by a Program Bank. Your Cash Balance while held by
Fidelity and in transit to or from a Program Bank is not FDIC-insured but is covered by SIPC.
I agree non-SIPC insured fintechs, of which most of them are, are a totally different can of worms, and I agree they are probably not covered by anything before the money lands in the FDIC bank's accounts.
This actually leads me to another interesting thought, is Schwab in a similar boat? They own their FDIC bank, but are you interacting with the bank or the brokerage when you tell Schwab to move money between the two? Does it matter? I have no idea, and their website near as I can tell never tries to answer the question.
Statistics: Posted by zie — Fri Jun 28, 2024 9:17 pm