Investing - Theory, News & General • Wealthfront Savings and the Yotta Debacle [Fintech banking concerns]

...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...

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."

What the SIPC insures is (verbatim from the SIPC website)

SIPC protects cash in a brokerage firm account from the sale of or for the purchase of securities.

Fidelity seems to disagree with your conclusion, in this PDF they say(bottom of page 13):

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.

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.

Yep, I agree. What the SIPC says really doesn't seem to match up with your quotation of what Fidelity says.

And I agree that we may not really know unless it is actually tested.

I don't think "innovative" is a good word when it appears in connection with financial products, and perhaps the biggest take-home from these discussions of services that flow money to and from FDIC-insured banks is that who if anyone actually is protecting consumers is a really tough question with no facile answer. The new products are not fully addressed by the old regulations.

I can point to a flat-out statement that something was protected by the SIPC when it really wasn't (Robinhood's "savings accounts" in 2018), and I can point to a flat-out statement that something was protected by the FDIC when it really wasn't (Voyager Digital), but I would expect Fidelity to be careful, accurate, and well-informed in a legal disclosure document.

Statistics: Posted by nisiprius — Sat Jun 29, 2024 7:26 am — Replies 199 — Views 15788

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