Is it safe to have cash in a brokerage account?

#4 07-10-2006, 08:59 AM

Thanks for the replies. In response to 2 comments.
1) Most of the cash was invested, and then sold, so it is correct that
most of it would be covered according to the footnote. But I also posed
the question as food for thought, for example, someone who could be in
a situation where they rolled over a lump sum pension, but didn't get a
chance to choose particular stocks, bonds or whatever.
They didn't invest it yet. Who is to say thet were just letting it earn
interest?
2) The brokerage where I saw the dislaimer was Scottrade, and they have
it just listed as cash. It doesn't say it is a money market. I do have
another brokerage account with Schwab in which I use tax advantaged
money market sweeps, so I know those would be covered. But the "cash"
in the Scottrade account is what I wanted to be sure about.
I could always put that money in a Schwab account, but I already moved
it out from there as I was paying a fortune in commissions back when I
was trading a lot more.

#3 07-08-2006, 10:57 AM

"hotpprs" <hotpprs[at]my-deja.com> wrote in message
news:1152309673.986518.55730[at]h48g2000cwc.googlegroups.com...
- quote -

> While I am waiting for the upcoming recession to come and go, I have
> most of my money in cash in my stock brokerage account. I guess most
> brokerage accounts are SIPC insured for way more then the typical
> investor like myself has in the account, but I am perplexed by a
> disclaimer at the end of the explanation of the SIPC coverage, as
> follows:
> " * In order for cash to be covered by SIPC, cash held in an account
> must be the for the purpose of, or as a result of, securities
> transactions. Cash held in a securities account for the purpose of
> earning interest, which was not the result of a securities transaction,
> may not be covered by SIPC. "
> How would you determine if cash sitting in a brokerage account is
> intended for security transactions or for earning interest? I may
> invest that cash again, and I may not. I may get hit by a meteor before
> that ever happens, who knows? But I am worried that this is a loophole
> in the insurance coverage by the SIPC. Is this the case? Does anyone
> know of any precedents on this subject, such as a brokerage firm that
> went belly up?

The assets of a brokerage firm that is trouble is usually bought by another
brokerage firm, i.e. Drexel Burnham by Smith Barney, E.F. Hutton by
Shearson. I wouldn't lose any sleep over it.

704set

#2 07-08-2006, 10:54 AM

"zxcvbob" <zxcvbob[at]charter.net> wrote in message
news:4h8jmvF1qnagmU1[at]individual.net...
- quote -

> hotpprs wrote:
> > While I am waiting for the upcoming recession to come
and go, I have
> > most of my money in cash in my stock brokerage account.
I guess most
> > brokerage accounts are SIPC insured for way more then
the typical
> > investor like myself has in the account, but I am
perplexed by a
> > disclaimer at the end of the explanation of the SIPC
coverage, as
> > follows:
> > > " * In order for cash to be covered by SIPC, cash held
in an account
> > must be the for the purpose of, or as a result of,
securities
> > transactions. Cash held in a securities account for the
purpose of
> > earning interest, which was not the result of a
securities transaction,
> > may not be covered by SIPC. "
> > > How would you determine if cash sitting in a brokerage
account is
> > intended for security transactions or for earning
interest? I may
> > invest that cash again, and I may not. I may get hit by
a meteor before
> > that ever happens, who knows? But I am worried that this
is a loophole
> > in the insurance coverage by the SIPC. Is this the case?
Does anyone
> > know of any precedents on this subject, such as a
brokerage firm that
> > went belly up?
> > If your all in cash, I assume you sold everything.
Therefore, wouldn't
> your cash qualify as "or as a result of securities
transactions."?
> Bob

I wonder how long you can leave (or put new) cash there
without a problem. Actually, I have never heard of this, so
thanks OP.

Why not buy 4 week T-Bills?

======================================= MODERATOR'S COMMENT:
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#1 07-08-2006, 04:44 AM

"hotpprs" <hotpprs[at]my-deja.com> writes:

- quote -

> " * In order for cash to be covered by SIPC, cash held in an account
> must be the for the purpose of, or as a result of, securities
> transactions. Cash held in a securities account for the purpose of
> earning interest, which was not the result of a securities transaction,
> may not be covered by SIPC. "
> How would you determine if cash sitting in a brokerage account is
> intended for security transactions or for earning interest? I may

Practically, it's moot. When SIPC talks about cash, it means CASH.
If your "cash" is in money-market mutual funds, it's not cash, it's
securities and so is covered under SIPC's securities coverage.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

07-08-2006, 02:31 AM

hotpprs wrote:
- quote -

> While I am waiting for the upcoming recession to come and go, I have
> most of my money in cash in my stock brokerage account. I guess most
> brokerage accounts are SIPC insured for way more then the typical
> investor like myself has in the account, but I am perplexed by a
> disclaimer at the end of the explanation of the SIPC coverage, as
> follows:
> " * In order for cash to be covered by SIPC, cash held in an account
> must be the for the purpose of, or as a result of, securities
> transactions. Cash held in a securities account for the purpose of
> earning interest, which was not the result of a securities transaction,
> may not be covered by SIPC. "
> How would you determine if cash sitting in a brokerage account is
> intended for security transactions or for earning interest? I may
> invest that cash again, and I may not. I may get hit by a meteor before
> that ever happens, who knows? But I am worried that this is a loophole
> in the insurance coverage by the SIPC. Is this the case? Does anyone
> know of any precedents on this subject, such as a brokerage firm that
> went belly up?

If your all in cash, I assume you sold everything. Therefore, wouldn't
your cash qualify as "or as a result of securities transactions."?

Bob

#-1 07-07-2006, 11:40 PM

While I am waiting for the upcoming recession to come and go, I have
most of my money in cash in my stock brokerage account. I guess most
brokerage accounts are SIPC insured for way more then the typical
investor like myself has in the account, but I am perplexed by a
disclaimer at the end of the explanation of the SIPC coverage, as
follows:

" * In order for cash to be covered by SIPC, cash held in an account
must be the for the purpose of, or as a result of, securities
transactions. Cash held in a securities account for the purpose of
earning interest, which was not the result of a securities transaction,
may not be covered by SIPC. "

How would you determine if cash sitting in a brokerage account is
intended for security transactions or for earning interest? I may
invest that cash again, and I may not. I may get hit by a meteor before
that ever happens, who knows? But I am worried that this is a loophole
in the insurance coverage by the SIPC. Is this the case? Does anyone
know of any precedents on this subject, such as a brokerage firm that
went belly up?

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