|
What Happens If Fidelity Goes Bankrupt in 2025?
What happens to client stocks, money, and investments if
Fidelity goes bankrupt (out of business)? Is Fidelity in financial trouble and could it fail?
|
Can Fidelity Fail?
It is not always possible to predict when major financial institutions will go bankrupt, and it is usually a surprise when it happens. Although it is doubtful that Fidelity will go belly up any time soon, you might be wondering what would happen if Fidelity went bankrupt.
Keep reading to find out.
What Happens If Fidelity Goes Bankrupt?
• If Fidelity goes bankrupt, insurance policies would protect investors from financial harm.
• Customer accounts are usually protected by either SIPC or FDIC.
• SIPC covers up to $500,000 for each investor, and there is an additional coverage called Excess of SIPC. FDIC covers up to $250,000 per investor per account, with coverage that can be increased by having money in more than one account.
Why Fidelity Going Bankrupt is Unlikely
While it is certainly possible that every company can go bankrupt, some organizations have a much smaller chance of that ever happening. Fidelity is a good example of such a company.
There are many reasons to think that Fidelity going bankrupt is unlikely. For one thing, Fidelity Investments
has been in operation since 1946 and has maintained leadership in the financial sector ever since. In 2023,
the broker was the eleventh largest private company in the United States, worth over $25 billion. Another
thing that makes it difficult to think Fidelity would go bankrupt is its sheer size. Fidelity has over
$15 trillion under management.
What Happens If Fidelity Goes Bankrupt?
Despite the unlikelihood of Fidelity becoming insolvent, it is good to know what would happen if the broker did go bankrupt. Would your money be safe? Are there any ways to maximize the potential coverage you can receive?
If Fidelity went bankrupt, the broker’s insurance policies would kick in to protect investors from any loss. Fidelity uses two types of insurance, and both protect investors in various ways.
Fidelity Investments Insurance
In most cases, customer accounts are protected by either SIPC or FDIC. SIPC covers securities and some uninvested cash in brokerage accounts, while FDIC covers cash balances in cash sweep programs.
Here is how both forms of Insurance work.
SIPC
There are two different SIPC plans at Fidelity, and they both work in a similar way. The main one covers up to $500,000 in securities, with half of that amount available for uninvested cash.
The other policy, Excess of SIPC, is built to add an extra layer of protection. It is designed to kick in when the primary plan is used up. The plan is provided by Lloyd’s of London. It adds up to $1.9 million in extra coverage for uninvested cash and no official cap on the value of investments within a portfolio.
Safest Brokers
FDIC
The other form of insurance offered at Fidelity is FDIC. FDIC covers several of Fidelity’s accounts and services. The cash sweep program is one example, and broker CDs are another.
FDIC covers up to $250,000 per investor per account. And, since Fidelity is partnered with 20 different banks for its cash sweep program, the amount of coverage is quite substantial. Each investor can access up to $5 million in FDIC coverage.
Many accounts at Fidelity utilize the cash sweep program, including Fidelity Cash Management, Fidelity’s lineup of retirement accounts, and the Fidelity Health Savings Account.
Fidelity actively manages the cash sweep funds across its partner banks to help investors maximize their coverage. When the cash sweep balance reaches the maximum insured amount in one bank, Fidelity enables the next bank on the list. This process continues until the maximum insured limit is reached in each bank.
Separation of Assets
In addition to Fidelity’s insurance policies, certain investments provide safety through a process called ‘Separation of Assets.’ Privately held mutual funds, for example, fall outside of the ‘securities’ definition and are not dealt with in the same ways legally. The funds themselves are separate legal entities, and any money held within them would not be at risk if the broker suffered financial hardship.
However, it's important to note that mutual funds purchased on a broker’s platform are considered securities and do not have the same level of ‘separation’ as privately held funds. To buy the correct type of mutual fund, speaking with a Fidelity representative is recommended.
Updated on 9/12/2025.
I work in investment analytics and have been investing in the market since I was in high school. I enjoy anything that involves lots of strategy (i.e. a good game of chess), which is why I was naturally drawn to investing and researching companies. Outside of investing, I’m a big fan of the outdoors. In summer, you’re most likely to find me kayaking, camping, and hiking in the mountains.
|