A:

The Federal Deposit Insurance Corporation (FDIC) works as a protector for customers when banks and financial institutions fail. The total limit per person is $250,000, and it is applicable to checking accounts, savings accounts and certificates of deposit (CDs). Mutual funds, stocks, bonds, annuities, Treasury securities and similar products are not covered by FDIC protection.

As a result, 401(k) accounts are generally not covered, since the assets invested are typically found in the list of exclusions. The one exception is money that is sitting in money market deposit accounts. This is usually the landing zone for fresh money being deposited into the account, giving little or no interest. As soon as that money is moved into funds or stocks, the FDIC coverage disappears. If you have $100,000 in your 401(k) with $20,000 in a money market deposit account and $80,000 in stock and bond funds, you have FDIC coverage for $20,000 if the company folds.

Most U.S. brokerage companies are also covered by insurance by the Securities Investor Protection Corporation (SIPC). The SIPC protects customers in the event a company folds, returning cash, stocks and other securities up to $500,000.

If money exceeds the FDIC coverage, it isn't lost, but you have to wait in line with other creditors while the company's assets are liquidated. You are unlikely to receive full, dollar-for-dollar compensation for money that exceeded the FDIC coverage. That's why it can make sense for high-value investors to divide assets between different banks or brokerages during uncertain times.

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