this is the important part:For the purpose of determining a customer account, accounts with like names and titles (e.g. Individual/John Smith and Individual/John Smith) are combined, but accounts with different titles are not (e.g. Individual/John Smith and IRA/John Smith).
If I have an individual cash account, a margin account, a Traditional IRA, a Roth IRA, and a Rollover IRA at IB, will IB protect these accounts up to the maximum insurance limit individually since the titles of the accounts are slightly different?
It is my understanding from talking with IB representatives that if you have an individual account and a joint account with your spouse, those are considered two accounts, and hence SIPC protection of $500,000 for each account. A separate IRA account should be a separate account for SIPC and insurance purposes. I would assume an individual cash account and an individual margin account for the same individual would be combined, so only one SIPC protection of $500,000. IB's insurance policy with Lloyd's of London is for an additional $29.5 million, and I assume accounts would be determined the same way as accounts are determined for the SIPC protection. The Lloyd's policy has an aggregate limit of $150 million. So while each customer account would be insured up to the $29.5 million under the Lloyd's policy, there's an overall limit of $150 million. So if in the unlikely event that IB would go belly up, then customers could claim the $500,000 SIPC coverage, as long as SIPC is solvent. Assuming SIPC is solvent, that coverage would likely cover many of the IB customer accounts. For IB customer accounts in excess of $500,000, then those customers would have to claim against the Lloyd's policy. Only if those claims exceeding $500,000 from all IB customers exceeded $150 million in the aggregate would anybody be out in the cold. As Def has noted, IB has been very conservative with their margin accounts to stave off most potential problems. Moreover, IB is well capitalized, from looking at their financials, available on their website. Therefore, the prospect that any particular customer would lose part or all of their account (of course we're not talking about market actions) is highly remote. Yet because there is some risk, however remote, if your account exceeds $500,000, I myself decided today to open a separate individual account with IB in addition to my joint account, so I'd have the SIPC $500,000 protection on each account. Def, please correct me if I misstated anything.
Also, Govt. insurance will only pay you 50 cents on the dollar. I know someone who had money in a bank that went under, and FDIC insurance was 50 cents on the dollar.
It's an interesting question. We know SIPC may not be covering penny stock or any other fraud of that nature, but what about a broker simply absconding with your money? I would hope that would be covered, other wise the insurance is not worth spit.
The disadvantage of splitting the account this way is the inefficiency of using your buying power. This is not a problem if you just have stocks, just split the portfolio. However, if you trade futures or (short) options and using most of your buying power for this, then you must reduce your quantity, effectively trading half size on each account. Worse, if you use hedging (i.e. options against futures), you have to keep each account hedged, rather then trading the futures in one account and the options in the other. This amounts to doubling your trading effort. Worst of all, if you trade futures or (short) options, most of your buying power is in cash, which has a cap of just $100,000 SIPC protection and small supplemental from lloyds. Unfortunately, I don't have a better solution than splitting accounts.