Is Vanguard FDIC Insured?
Vanguard is covered by SIPC insurance, but it does not have FDIC insurance. Here are the details:
Vanguard offers only brokerage accounts and does not provide any bank accounts, such as checking or savings accounts.
Since the FDIC guarantees only bank accounts, Vanguard does not have FDIC insurance.
Every brokerage account at Vanguard is protected by SIPC, with an insurance limit of $500,000. Up to $250,000 of this can be applied to cash that is not invested.
Calculating SIPC Coverage at Vanguard
SIPC insurance is generally per customer, per brokerage firm. This setup means you can have coverage for multiple accounts across different brokerage firms, but not for multiple accounts at the same firm. There are exceptions to this rule, though.
For instance, under SIPC rules, different types of IRAs are insured separately from taxable accounts. A Roth IRA and a Traditional IRA are considered separately.
If you have two IRAs at Vanguard (one Roth and one Traditional) and two taxable individual accounts, you would have a combined total of $1.5 million in insurance coverage. The retirement accounts would have $1 million of protection (each IRA protected up to $500,000), and the taxable accounts combined would be covered up to $500,000 (not $500,000 each).
If one of the taxable accounts is a joint account, it would have its own $500,000 coverage, leading to a total of $1 million in insurance for the taxable accounts.
Vanguard And Top Competitors
Money Market Settlement Fund
Vanguard uses a money market mutual fund as the central holding for each brokerage account. Therefore, any uninvested cash in an account is automatically moved into this money market fund, known as the settlement fund.
Since the settlement fund is treated as a security, it gets the full $500,000 SIPC protection, rather than just $250,000. Although it functions like cash, it's technically a security and its NAV consistently stays at $1.00 under normal conditions.
Currently, Vanguard’s Federal Money Market Fund is the designated settlement fund for all brokerage accounts.
Account Example
To demonstrate how SIPC protection operates at Vanguard, imagine you have a taxable brokerage account with $600,000 in assets, divided as follows:
$230,000 in Tesla stock
$70,000 in GLD, the gold ETF
$300,000 in VMFXX, the settlement fund
Should Vanguard face bankruptcy and some account positions are missing, SIPC would not fully guarantee the account. It would protect 83.3% of the account value ($500,000 of $600,000). All of the settlement fund would be protected, not just $250,000, but $100,000 of the account's total value would remain unprotected by SIPC.
Remember, the assets in the account legally belong to you, not Vanguard. If Vanguard were to go bankrupt, its creditors could not claim these assets. SIPC insurance is in place to cover missing positions, which can occasionally occur in the securities industry.
Supplemental Insurance at Vanguard
Vanguard has an additional insurance policy through Lloyd’s of London and London Company Insurers. It offers another layer of security for brokerage accounts if, and only if, the standard SIPC coverage is not enough.
This extra insurance can cover up to $49.5 million for each account, with a total cap of $250 million across all accounts. This means the insurance can pay out a maximum of a quarter of a billion dollars if all SIPC protections are used up.
Returning to our earlier example, the $100,000 of account value that was not covered by SIPC should be protected by this additional policy, provided that the overall limit hasn’t been reached. Beyond that, there are no further guarantees.
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Updated on 1/1/2025.
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