What Are The Safest Brokerage Firms?
Safety of Brokerage Firms: An Overview
If you're thinking about opening a brokerage account, you may be wondering how safe brokerage firms really are. This article looks at those concerns by reviewing the protections
available at stock brokerage companies and comparing them with the safeguards offered by banks in the United States.
Legitimacy of Brokerage Firms
The overwhelming majority of online brokers are fully legitimate. In fact, some are owned by
major American banks. For example, Merrill Edge is owned by Bank of America, one of the world's
largest financial institutions. Other broker-dealers that are not tied to banks have been
operating in the brokerage industry for many decades. For example, Fidelity was founded in
1946.
Insurance for Brokerage Accounts
The Federal Deposit Insurance Corporation (FDIC) insures deposits at American banks, but it does
not insure brokerage accounts. Online investing is treated as a separate industry,
regulated and protected by different organizations.
The Securities Investor Protection Corporation (SIPC) is a Congress-mandated organization funded by
member brokerage firms. It offers protection for securities such as stocks, bonds, ETFs,
options, and mutual funds, up to
$500,000 per account, including up to
$250,000 for cash. By comparison, FDIC deposit insurance generally covers up to
$250,000 per depositor, per insured bank, per ownership category.
It's important to understand a key difference between SIPC and FDIC protection. While the FDIC protects insured deposit balances within its coverage limits, SIPC helps protect the cash and securities in your brokerage account if a broker-dealer fails and customer assets are missing.
To show the difference, consider this example: Suppose you deposit $500 into an FDIC-insured checking account. If the bank fails, the FDIC protects that deposit within the insurance rules, and you are reimbursed for the covered amount.
Now imagine you put the same $500 into a brokerage account and use it to buy five shares of a stock priced at $100 each. If the broker-dealer fails, SIPC helps return those five shares if assets are missing, but it does not protect the market value of the investment. If the stock becomes worthless, your account value will be zero even with SIPC protection.
As a result, one major difference between banking and investing becomes clear:
investments can rise and fall in value, while bank deposits generally have a fixed dollar value. Because of this, securities accounts naturally carry more risk than deposit accounts.
The Safest Brokerage Accounts
Robinhood and
Charles Schwab are reputable
companies that have never required a bailout and are considered safe options for opening
a taxable brokerage or IRA accounts.
Robinhood Promotion
Open Robinhood Account
Charles Schwab Promotion
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Safety of Technology
By their very nature, all online brokers provide trading tools to their self-directed customers.
These tools range from basic websites to more advanced web platforms, mobile apps, and even smartwatch platforms. Some brokers also offer desktop platforms with different levels of sophistication.
Online brokers have the same duty as other companies to protect your data. When you send your information online, it is transmitted over an encrypted network. You can check whether your connection to a broker’s website is secure by looking for a padlock symbol next to the website address (URL).
Brokerage firms do take steps to protect personal information, but they have been
targeted by hackers before. Still, that does not automatically make online brokerage firms more dangerous than other financial institutions. Hackers have attacked many different computer systems, as shown by the Equifax data breach.
Different Securities Carry Different Risks
If you're new to investing and worried about keeping your money safe, you can
start with securities that usually provide a higher level of stability. For example, large-cap stocks with
a long record of paying dividends are generally safer than small-cap stocks with no dividend history. Established blue-chip stocks are generally safer than newer, unproven companies.
Funds, such as mutual funds and ETFs, are often safer than individual stocks because they hold a diversified basket of stocks and bonds. By spreading money across multiple assets, funds reduce the risk of a major decline in any one holding (although they also reduce the chance of very large gains).
Compared to stocks, bonds are generally viewed as safer because they have a fixed face value. As a result, bond prices are often more stable than stock prices.
However, not all bonds are the same. Some bonds have high ratings (AAA grade), while others are considered below investment grade, often referred to as "junk bonds" rated BB+ or below. In general, short-term bonds are safer than long-term bonds.
Instead of buying individual bonds, you can trade bond funds, which come in many forms depending on the debt they hold. The safest bond funds usually invest in highly rated, short-term bonds.
All these financial products and more can be bought and sold through online broker-dealers in the United States. The key is to understand what you're investing in so you can invest more safely.
Managed Accounts
If you're still not comfortable making investment decisions on your own, you can hire a professional to handle your trades. Many online discount brokers offer this service. The people managing brokerage accounts should be qualified investment professionals, but it is always smart to check their credentials before committing.
Because low fees are a major selling point, several discount brokers have built automated software programs that make trading decisions. These "robo-advisory" services can cost as little as
0.00% per year (yes,
$0) of your account's value.
Safest Stock Brokers Summary
You can feel comfortable opening an investment account and placing your first trade. It's
important to choose a broker that is a member of SIPC and FINRA, the industry watchdogs, to help
protect your investments.
Updated on 4/14/2026.
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