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SIPC vs FDIC: What’s the Difference?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The Securities Investment Protection Corporation (SIPC) and the Federal Deposit Insurance Corporation (FDIC) each play a major role in consumer financial protection. The two agencies insure banks and other financial entities, so that if a bank were to fail, consumers and their money would remain protected.

The SIPC and FDIC serve different purposes, so you won’t necessarily be making a choice between the two. Rather, you should have an informed understanding of each entity, their similarities and differences and how these agencies can help you protect your money.

What’s the difference between FDIC and SIPC insurance?

While both the FDIC and SIPC insure banks and other financial institutions, they’re not interchangeable, and each serves a different purpose. In broad strokes, the FDIC is an independent federal agency that protects losses in deposit accounts, while the SIPC is a nonprofit membership corporation that protects clients of broker-dealers that are members of SIPC.

Here are a few key differences between the two entities.

 SIPCFDIC
What it is
  • Nonprofit membership corporation founded by federal statute
  • Independent federal agency formed to protect consumers against bank failures
What it covers
  • Stocks, bonds, CDs, Treasury securities, mutual funds and money market mutual funds
  • Deposit accounts (checking and savings accounts), CDs and money market accounts
What it does not cover
  • Declines in investment value
  • Commodity futures, investment contracts or fixed annuity contracts that aren’t SEC-registered

  • Stocks, bonds, annuities, mutual funds, money market funds, municipal securities or life insurance policies
How much it insures
  • Up to $500,000 per customer
  • Up to $250,000 per account holder for each deposit account type

SIPC vs. FDIC: What each one protects

The SIPC and FDIC offer financial protections for consumers. Both serve as essential entities to ensure financial safety for investors, whether large or small. The SIPC and FDIC, however, protect different types of accounts, which is why it’s important for consumer investors to understand what these entities do and do not insure.

The FDIC is primarily concerned with insuring various types of deposit accounts. It covers the following:

The SIPC covers clients of broker-dealers for investments, such as stocks, bonds, and CDs. More specifically, the SIPC covers the following:

  • Notes
  • Stocks
  • Bonds
  • Treasury stocks
  • Evidence of indebtedness
  • Debentures
  • Voting trust certificates
  • Collateral trust certificates, preorganization subscriptions or certificates
  • Puts, straddles, calls or privileges made on a national securities exchange in regard to foreign currency
  • Puts, straddles, calls, options or privileges on a security or collection of index securities. This includes interest made or based on its value
  • Investment contracts, certificates of interest or participation in profit-sharing agreements. These include in oil, gas or mineral royalties or leases
  • Security futures as defined in section 78c(a)(55)(A) of the Securities Investor Protection Act

It’s important to understand that SIPC insurance makes you whole if the firm managing your investments goes out of business. What it does not cover are losses from either bad investing strategy or market downturns. SIPC insurance won’t make you whole if the person managing your money makes terrible investment decisions, or if the account underperforms.

Additionally, the SIPC does not insure commodity futures, investment contracts or fixed annuity contracts that are not SEC-registered.

SIPC vs. FDIC: Coverage amount

Both the FDIC and SIPC also adhere to coverage limits, with coverage amounts differing under the two agencies. The SIPC covers up to $500,000 per customer, while the FDIC protects up to $250,000.

If a financial institution fails, the FDIC will replace consumers’ funds to the dollar up to $250,000, plus interest, up to the date the bank or other institution failed. That $250,000 coverage applies per individual per account account type. This means that if a customer has both a checking account and a savings account at one financial institution, they will be insured up to $250,000 per account, for a total of $500,000 in coverage. For those with a joint account, each individual will be covered for up to $250,000 each, for a total of $500,000 in coverage.

The FDIC provides a tool, called the Electronic Deposit Insurance Estimator (EDIE), that consumers can use to determine what will be insured, what won’t be and which limits and rules apply to an account.

The SIPC, meanwhile covers up to $500,000 per customer, with a $250,000 limit for cash. The SIPC offers limited protections for consumers, only offering protection when a broker-dealer fails. In other words, SIPC will not protect consumers from the decline in value in any securities, bad advice from a broker or inappropriate investment recommendations. Rather, the SIPC will insure investors’ money up to $500,000 per customer, replacing lost securities and stocks if a broker-dealer agency fails.

SIPC vs. FDIC: Which is better?

The SIPC and FDIC operate differently while still serving the same overall purpose of protecting consumer investments. If you hold a diverse portfolio that includes both deposit accounts and securities investments with a broker, you’ll likely need to find institutions that offer both SIPC and FDIC coverage.

Keep coverage limits in mind when making large investments, as that is a risk of this insurance. Remember that the SIPC, for example, will cover up to $500,000 in investments, but will only protect $250,000 in cash. The FDIC, meanwhile, will protect up to $250,000 per deposit account per customer, which means you can potentially protect $1 million across several types of accounts at one bank.

If you’re investing in securities, you’ll need SIPC insurance. When deciding on how to best invest your money, you may want to consider insurance coverage. You can also keep your investments spread across multiple financial institutions, further maximizing FDIC and SIPC coverage.

Neither the SIPC or FDIC directly charge for insurance. As such, consumers won’t pay anything or have to enroll in these programs. The coverage will be applied automatically to their accounts when working with an insured financial institution. However, these costs can be passed on to customers through charges and fees from a financial institution, which customers will not be able to control.

SIPC vs. FDIC: How to know if your account is insured

Not all banks or brokerages are insured. Before you invest or store your money with any institution, make sure it’s FDIC and/or SIPC protected, depending on the type of investment you’re making. Simply put, you can never escape the risk that a bank or brokerage will fail, so you shouldn’t go without FDIC or SIPC insurance.

Use the FDIC website to make sure your bank is backed by the FDIC. Once you’ve confirmed a given financial institution is covered by the FDIC, use the agency’s Electronic Deposit Insurance Estimator to learn the specifics of the kind of coverage you’ll receive. You can then keep that information on record so you can always have the information at hand.

The same applies if you hold securities investments with a brokerage. Check with your individual brokerage firm to make sure they’re insured by the SIPC. If you’re working with a firm that is currently or recently was insured by the SIPC but no longer is, the SIPC will protect your investments for up to 180 days after the brokerage firm ends their SIPC membership. If this happens, you may want to consider switching your investments to another brokerage firm that is insured by the SIPC.

SIPC vs. FDIC: The final word

It’s essential to protect your money, whether it’s stored in a checking account, savings account, a CD or any type of security. The FDIC and SIPC were established to do just that — protect consumer finances.

Every investment is worth protecting, both large and small, short-term or long-term, low-risk or high-risk. Before you commit to an investment or a financial institution, do your research to make sure that if trouble comes down the line, you and your financial future will remain safe.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Anne Bouleanu
Anne Bouleanu |

Anne Bouleanu is a writer at MagnifyMoney. You can email Anne here

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How to Start Saving Money

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Faced with an unexpected expense, like a car repair or leaky roof, many Americans might not have enough money in the bank to cover the bill. Just over half of U.S. households currently have a savings account, and 29% of households have less than $1,000 saved, according to a MagnifyMoney survey.

Whether putting money away for a rainy day or retirement, good savings habits can prepare you for emergencies and life changes. There are countless ways to build up your savings, from finding ways to cut back on spending to looking for areas where you might be overpaying. The time and discipline you invest implementing them will pay off — quite literally.

How can I start saving money?

If you’re just starting out on the path of building your savings, small changes can add up over time. A review of your budget should uncover items that can deliver larger, immediate gains. Here are more than two dozen money-saving strategies you can adopt for the short-term and the long-term.

Tips for saving money today

1. Set an intention
According to Sergio G. Garcia, associate planner for Quest Capital Management in Dallas, Texas, “saving money is tied to behavior and psychology, so it is important to find a personal focus to drive the savings behavior that works best for you.” Write down the reasons you want to save money, such as buying a house or retiring early, and put it in a place you’ll see every day.

2. Save your spare change
Collect your spare change at the end of the day and put it into a jar — you’ll be surprised at how quickly it can add up. If you use a debit card, some banks, like Bank of America, offer round-up savings plans, automatically moving the change into your savings account. For example, if you spend $19.50, the program will round-up your purchase to $20 and move $0.50 into your savings account.

3. Get a micro-saving app
Similar to saving spare change, you can also link your bank account to a money-saving app that does the savings for you. For example, Acorns automatically rounds up your purchase and moves the change into an investment account.

4. Cut the excess
To save money, you need to know where you’re currently spending it, suggested Matthew Gaffey, senior wealth manager for Corbett Road Investment Management in McLean, Va.: “List and monitor all of your expenses to get a full picture of how much you’re spending and where.” Money management habits will typically shed some light on a few areas that you could reduce or cut, such as unused magazine subscriptions or gym memberships.

5. Adopt a waiting period
The ease of online shopping can be brutal to your budget. Instead of falling for the impulse to make a purchase on the spot, implement a wait policy, such as 24 or 48 hours. You might realize you can live without that item you’re craving.

6. Don’t fall for a “great deal”
It’s hard to resist the lure of a good bargain. But saving 50%, 75% or even 90% isn’t a good deal if you don’t really need it. Instead of focusing on the discount, consider the amount you’re spending and how much you’ll really use the item.

7. Use a cash-back credit card
Some credit cards offer as much as 5% cash back in certain categories, which can add up. For example, the Chase Freedom® card offers bonus categories each quarter that give 5% cash back on up to $1,500 qualified spending, with unlimited 1% cash back on all other purchases. If you spend the full $1,500 each quarter in the bonus categories — which can include gas stations or grocery stores — you could earn $300 cash back a year. If you were going to make these purchases anyway, this is a good way to save money.

8. Find rebates
Before making an online purchase, check cash-back sites like Mr. Rebates or Ibotta and see if the store offers a rebate if you click through the site. You could earn a set cash-back amount or a percentage on a purchase.

Ways to start saving money every month

1. Automate monthly savings
Sign up for automatic savings withdrawals. “Direct deposit from a paycheck is great because then it happens automatically and you don’t even have to think about it,” said Amy Shepard, financial planning analyst at Sensible Money in Phoenix. In addition, she advised, “set reminders to increase your savings periodically, such as every six months or every time you get a raise.”

2. Create specific savings goals
Save for big things, like a vacation or kitchen renovation, by using a bank that allows you to set up separate savings accounts for different goals, said Bethany Griffith, senior financial advisor and partner at Abacus Planning Group in Columbia, S.C. “It can be a great way to jump start savings,” Griffith said. “The visual check-in each time you look at your accounts is a powerful driver for changing behavior.”

3. Do a 52-week money challenge
With the 52-week money challenge, you save more every week, and see clearly how savings can add up over the course of a year. Create a weekly savings challenge by saving $1 on the first week, $2 on the second week and continue until you’re saving $52 on the final week of the challenge. In a year you’ll have saved $1,378, not including interest.

4. Create a weekly meal plan
The average American household spends more than $3,400 a year on meals away from home. You’ll be less likely to eat out or order in if you’ve planned your meals for the week. Having a meal plan also helps you create a grocery list to avoid impulse purchases or food that goes uneaten.

5. Review your monthly bills
It’s irritating when your cable or cell phone bill goes up, but that extra $5 or $10 a month can add up to $60 or $120 over the course of a year. Pay attention to your monthly bills. If you see an increase, call and ask why. If you’ve been a customer for a long time, companies will often lower the rate instead of risk losing you.

6. Pay down debt
Americans pay $113 billion in credit card interest each year. If you’re among those that carry a balance, you can get an immediate return on your money by paying it down and eliminating it.

7. Adjust the thermostat
Save as much as 10% a year on heating and cooling by adjusting your thermostat seven to 10 degrees from its normal setting for eight hours a day. This can be while you’re at work or while you’re sleeping — or both, for even more savings. A programmable thermostat can do the work for you, easily paying for itself.

8. Use a price-drop refund app
Several retailers will give you money back if an item you bought goes on sale, but tracking that can be a chore. Use an app like Earny to do the tracking for you automatically. The app also takes care of the claim — Earny claims it saves the average user $75 each year.

Start saving money over the long term

1. Annualize your spending
A latte or vending machine habit might seem harmless, but when you multiply that daily expenditure by five days a week and 50 weeks a year (assuming you take a two-week vacation), it can add up to a substantial sum — one that might not seem worth it when you annualize your spending. Try this with your regular discretionary spending and see what you could do without.

2. Review your insurance
Make a habit to review your property and auto insurance each year. Jeffrey N. Tomaneng, director of financial planning for Sapers & Wallack in Newton, Mass., recently had an agent audit his policies and made changes to save $2,100 a year in premiums — “within a few days we were off to some much needed household savings,” he said.

3. Sell your stuff
The average American has 42 items in their home they no longer use worth an estimated $723. Sell them! Hold an annual garage sale, or list your items on eBay, Mercari or Facebook Marketplace. Someone else can use and enjoy them and you can pocket the money.

4. Shop around for higher interest rates
Your bank savings account may be conveniently attached to your checking, but if the interest rate is negligible you could be leaving money on the table. Look for higher interest-rate savings accounts that can help you build your balance.

5. Review your withholdings
Each year, review your benefits and withholdings and ensure you’re taking advantage of the benefits your company offers, such as flexible spending accounts or matching retirement. If you get a refund each year after tax season, consider adjusting your exemption amounts and stop giving the government an interest-free loan on your own money.

6. Look for discounts
If you’re a member of a professional or alumni association, you may get discounts on business services, insurance or travel. Make a point to review your benefits each year, and use them to find the best deals.

7. Review your credit card benefits
Before you buy that extended warranty or insurance on your rental car, check and see if the credit card you’re using offers it for free as a benefit of being a cardholder. You can save hundreds of dollars by knowing what you’re already offered.

8. Check your credit report
Each year you should order a copy of your credit report to make sure it’s accurate; you may find a discrepancy that could hurt your chances of getting better interest rates on a loan. You’re entitled to a free report each year from each of the reporting agencies, which you can obtain from AnnualCreditReport.com.

Bottom line

Developing any new habit requires behavior changes — changes that can be uncomfortable at first. But getting into the habit of saving money is worth it. Building a nest egg can provide peace of mind. Once you start seeing your balances grow, the numbers will give you the motivation you need to keep going and keep saving.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Stephanie Vozza
Stephanie Vozza |

Stephanie Vozza is a writer at MagnifyMoney. You can email Stephanie here

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Mega Millions Annuity or Cash: Which Should You Take?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

There’s exactly a one in 302,575,350 chance that you’re going to win the Mega Millions jackpot. Those aren’t great odds: In fact, you’re about 80 times more likely to be attacked by a shark, and about 19 times more likely to give birth to identical quadruplets.

But hey, someone has to win right? And when that lucky person does hit the jackpot, they’ve got a big question on their hands: Do you take the Mega Millions annuity or stick with the lump sum payout?

And whether you’re the person with that lucky one in 302,575,350 ticket, or just curious about how the system works, it’s worth knowing the difference between the two payout options — because they change a lot about how you get your winnings.

With that in mind, here’s everything you need to know about the Mega Millions annuity, the lump sum option, and which one you should choose if you hit the jackpot.

Mega Millions annuity: How it works

Unlike the lump sum option — in which you get all of your money at once — the Mega Millions annuity spreads your winnings into annual, gradually increasing payments. Similar to the Powerball annuity option, the Mega Millions system is spread out over 29 yearly installments, in addition to one immediate payout you get when you cash in your ticket.

That’s 30 payments in total. It may seem like a long time to wait for your money, but, according to the lottery, this system is designed to “protect winners’ lifestyle and purchasing power in periods of inflation.” Also, since payments grow by 5% every year, your will increase a lot over time.

So what does the annuity option actually look like? Let’s look at an example. Say you won a $100 million jackpot, and you live in Virginia — a state with a pretty average tax rate. Here’s how some of your payments would look:

  • Your initial payment, which you get as soon as you cash in your ticket, would be $1,083,703 after taxes.
  • Your first yearly payment (your second payment in total, but the first of your annual installments) would be $1,137,888 after taxes.
  • By year 14, you’d eclipse $2 million, earning an annual payment of $2,043,484 after taxes.
  • By year 22, you’d exceed $3 million, getting $3,019,157 after taxes.
  • Your final installment would total $4,460,670, more than four times your original payment.

After taxes, this scenario would leave you with a total of $72,000,000. Your taxes will obviously vary based on your state though, so to explore more options — and see a more thorough, year-by-year breakdown — check out this online calculator.

Mega Millions lump sum: How it works

The lump sum, also known as the cash option, is a little more straightforward. It involves a single, one-time payment that you receive right after you cash in your winning ticket.

There are a few details worth nothing, though. First, the jackpot amount you see advertised on billboards and lottery machines is not the lump sum payout. Those numbers show you what you’d get over 29 years with the annuity option — in reality, the cash option is always less.

Robert Pagliarini, president of Pacifica Wealth Advisors and a financial planner who specializes in sudden wealth events, says that the lump sum normally pays around 60% of the advertised jackpot.

And that’s not including the government’s share. The good news with the cash option is that you only have to pay taxes on your winnings once, but Pagliarini warns that it’s still something winners need to take into account.

For example, in that same situation from before — the one where you’re a Virginia resident who wins a $100 million jackpot — your lump sum payment would be $43,920,000 after taxes.

Mega Millions annuity vs. cash: Which should I choose?

Yes, taking the annuity will eventually amount to more money, but both options have some major advantages. Here are some of the biggest benefits of each.

Mega Millions annuity advantages

Pagliarini says he “preaches” this option to clients for a number of reasons — and not just because it’s a bigger jackpot. Another draw is that the annuity option gives winners room for mistakes, which could be crucial for people who are suddenly coming into a large sum of money.

“What we find is that some people make some fairly bad decisions when they get such a large amount of money,” Pagliarini said. “[The annuity] allows someone to screw up with their money and get a do-over — not just one do-over, but 29 do-overs.”

Pagliarini also said he believes the annuity option makes it easier for winners to deal with taxes, as they’ll lose a small amount every year versus one big tax hit with the lump sum. He said cash option winners may “anchor” — or mentally attach themselves — to the total jackpot amount, setting themselves up for disappointment when they lose millions in taxes at once.

Mega Millions lump sum advantages

The most obvious advantage here is simple: You get all of your money at once. That sort of quick, immediate payout is great in a lot of situations — if you’re older, have some immediate spending needs or just want your money now — but Pagliarini points out another big selling point.

To him, it’s all about investment. Taking the cash option gives you a lot of money to work with, and, if you use it wisely, you could find yourself in an even better financial situation than if you took the annuity. Pagliarini suggests that lump sum winners put a big percentage of their jackpot into stocks or real estate as soon as they receive it.

“In fact, if you were to take that money and invest it in a diversified portfolio,” Pagliarini advised, “you most likely would actually end up with more money than if you had taken the annuity.”

But despite these advantages, Pagliarini almost always tells people to take the annuity. He warns that if you do choose the cash option, you should immediately surround yourself with a large team — of tax lawyers, accounts and financial advisors — to help you manage that massive payday.

“The pressures [of winning a jackpot] are so intense that it’s really easy to make bad decisions,” Pagliarini said. “So it’s really important to have someone helping to make decisions on your behalf.”

Mega Millions FAQ

What happens to an annuity if the winner dies?

If someone who’s chosen the annuity dies, the lottery will continue with annual payments exactly as scheduled, making them out to the winner’s selected beneficiary or beneficiaries.

How do I claim my Mega Millions prize?

Jackpot winners must claim their jackpot in person at their state’s lotto headquarters. The time frame for this process varies by state — you can have between 90 days to one year to claim your jackpot, depending on where you live — and you must redeem your ticket in the state where it was purchased.

Can I remain anonymous if I win Mega Millions?

This one also depends on your location. Only 12 states currently offer anonymity to jackpot winners, and some of those offers come with restrictions. For example West Virginia requires winners to donate 5% to the State Lottery Fund in order to remain anonymous. You can find a list of each state’s Mega Millions anonymity rules here.

Are there Mega Millions scams I need to know about?

Yes. The lottery warns that you should beware of unsolicited messages via phone, email and social media, as well as anyone who asks you to provide bank info or send them money before redeeming your jackpot. Mega Millions offers plenty of tips for avoiding scammers, including making sure any call you receive is actually coming from the lottery and being suspicious of anyone saying you must keep your win confidential. They also warn that you should avoid anyone saying they work for Mega Millions — remember, Mega Millions is a game, not the name of an organization.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here