Robinhood debate highlights differences in FDIC and SIPC protections

Robinhood’s news this week inspired a Twitter debate over FDIC versus SIPC coverage.

And the most vocal critics of the limitations of SIPC coverage were financial advisors.

Jude Boudreaux, partner and senior financial planner at The Planning Center, was one of them.

Without more detail on Robinhood’s accounts, Boudreaux said there’s “no way” he would recommend a client invest with them.

“We’re taking a lot of unknown risk here for, honestly, not a lot of extra returns,” Boudreaux said.

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While it’s not the Great Depression, there are still banks that are forced to shutter, he said. And the good news for investors when they’re FDIC-insured: They will get their money back.

If, however, that account is SIPC-covered, investors may only get a percentage of their money back. They could also be subject to a lengthy dissolution process.

To help frame decisions, Boudreaux talks to his clients in terms of small mistakes versus big mistakes.

“It’s a small mistake if you don’t get every penny of interest you could on a deposit,” Boudreaux said. “But it’s a big mistake if we put those true cash deposits in a place that we don’t know anything about and something happens.”

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