As an investor, you likely focus on one thing: finding the investments which will earn you a great return without a significant amount of headache.
What you likely don’t want to worry about is whether your broker complies with regulatory requirements, carries adequate insurance coverage or provides you with administrative peace of mind.
In the brokerage and banking space, two organizations answer this call on your behalf, extending coverage to financial institutions in the event of possible insolvency or bankruptcy from the company.
M1 Finance is a brokerage and banking institution. To earn the right to hold your money on its platform, it needs to carry conforming coverage from two important institutions: the FDIC for banking deposits and SIPC for investment balances.
Neither organization restores money lost from investments gone bad, but both offer unconditional coverage within certain conforming limitations.
In short, if M1 Finance fails to continue as a going concern, the SIPC and FDIC will step in to insure you will get your money back.
This article will talk about what FDIC and SIPC insurance are, how they work with M1 finance and how it benefits you as an investor and depositor.
What is M1 Finance?
M1 Finance is an all-in-one financial management app. It provides one of the best investing experiences for first-time and experienced investors looking to automate their finances.
You manage your money on M1 Finance’s brokerage platform, called M1 Invest, with all of its securities being held in your name.
You can invest in stocks, ETFs and portfolio pies, which are expert-designed or custom-crafted with the securities you want to own for your portfolio.
You have full ownership over your assets with full control over how they’re invested or withdrawn from your account.
The service charges no commissions, account management or subscription fees for the basic M1 Finance product suite.
If interested in the company’s premium offerings under the M1 Plus branded services, you can opt to pay the annual fee of $125. The company frequently runs promotions on this service and you might be able to snag your first year for free.
This offers a number of benefits like higher interest rates on your checking account, cash back on your linked debit card purchases, lower margin rates among many other features.
The company carries two types of insurance coverage to protect you from the company’s insolvency or bankruptcy: FDIC and SIPC coverage.
We’ll discuss those more below.
What is the FDIC?
The FDIC is a non-profit self-regulating organization that protects you from your bank’s insolvency.
The FDIC is a major part of the government with close ties to the U.S Treasury, and there are over 5,000 banks currently insured by the FDIC as of the end of 2020.
The FDIC receives funding from the bank insurance fund, which is backed by the U.S. Treasury and taxpayer money to help protect you from your banks insolvency or bankruptcy in case of emergencies like a financial crisis.
The bank insurance fund receives money from FDIC-member banks’ annual insurance premiums.
What is FDIC Coverage?
FDIC insurance covers up to $250,000 for deposits per account holder at each institution. It also covers up to $500,000 of deposits if they’re structured as joint accounts.
For living trusts, subject to certain rules and limitations, you can receive up to $250,000 per trustee listed, though this depends on the status of the trust as irrevocable or revocable, as well as whether the trustees hold equal shares in the trust.
In the case of joint checking accounts, if one person has two checking accounts in their name at one institution, this individual can only carry up to $250,000 in coverage in aggregate for this bank.
To receive additional coverage on these deposits, the individual would need to open a second insured deposit account at a separate institution.
The FDIC offers coverage on both demand deposit (checking) accounts and savings accounts deposits (savings). It also offers coverage on time deposits like certificates of deposit.
Is M1 Finance FDIC Insured?
Yes. M1 Finance carries FDIC insurance coverage on the company’s banking product, M1 Spend. The company purchased FDIC insurance coverage worth up to $250,000 per individual who holds deposits at the bank.
What is M1 Spend?
M1 Spend is a free checking account offered within the M1 Finance platform. Only M1 Finance investors may open and access this account.
M1 Spend operates like any other checking account, and offers the security of FDIC insurance.
You can use the checking account to make direct deposits of your paychecks, initiate bank transfers, use the linked Visa debit card and have it sweep cash into your M1 Invest account to invest.
If you upgrade to the M1 Plus subscription, it also offers 1% APY interest, far above rates offered on most any other checking account nationwide.
Further, you can receive a debit card that offers 1% cash back on most purchases, those rates on both products may vary.
Related: How Do Prepaid Debit Cards Work?
What is the SIPC?
The SIPC, or the Securities Investor Protection Corporation, is a non-profit self-regulating organization that protects investors who buy securities, such as stocks and bonds.
The SIPC has three major functions:
- Provide a limited amount of money to customers if an individual brokerage firm goes bankrupt or becomes insolvent due to fraud, theft or misappropriation of funds
- Put a stop to any fraudulent or unauthorized trading of customer securities
- Offer investor education to the public
This organization is not funded by taxpayer dollars, meaning that it relies on membership dues in order to operate.
The SIPC is also overseen by the U.S. Securities and Exchange Commission as well as state insurance regulators for protection purposes should any crime occur.
This is a crucial organization for investors to be aware of, as it can make the difference between losing your investments and recovering some of your losses in case an individual brokerage firm goes bankrupt or becomes insolvent.
What is SIPC Coverage?
The SIPC offers coverage for customer securities against a brokerage firm going bankrupt or becoming insolvent.
The SIPC is not the FDIC, which provides coverage for bank accounts as discussed above.
SIPC coverage offers protection from losses in your brokerage account should your broker go bankrupt. This does not mean you will receive a refund or repayment of funds lost through routine investing decisions where your assets went down in value.
You will want to keep this distinction between the FDIC and SIPC in mind if you have both stocks as well as cash on hand with M1 Finance.
If you hold cash or securities in your investment account with M1 Finance, the SIPC coverage will guarantee up to $500,000 in asset value with a maximum of $250,000 in cash if M1 Finance becomes insolvent or proceeds to bankruptcy.
M1 Finance also offers custodial accounts which carry SIPC coverage.
Is M1 Finance SIPC Insured?
Yes. M1 Finance carries SIPC insurance coverage for its M1 Invest product.
M1 Finance is a member of SIPC, which adds another layer of protection over your financial assets held on the free stock app’s brokerage platform.
The SIPC focuses on getting cash back in your hands if your brokerage firm (M1 Finance) fails.
The company must refund money to investors as quickly as possible if you lost cash held in the account tied to M1 Finance’s insolvency or bankruptcy.
If you lost stock shares, SIPC will restore your position at the value on the close of the business day on the date the petition got filed with SIPC.
SIPC insurance coverage only amounts to $500,000, with a $250,000 specific carve out available for cash.
You maintain responsibility for tracking stocks and cash balances in your account. Carrying balances greater than the SIPC coverage means you might have uncovered funds on hand.
SIPC acts as an umbrella coverage requiring brokers to:
- Maintain a minimum amount of assets on hand to ensure adequate liquidity to meet the ongoing needs of the business
- Keep firm and customer assets segregated and not commingled
Am I Insured Against Investment Losses?
The FDIC nor SIPC provide insurance against investment losses you might experience in the market.
To purchase insurance against potential investment losses, you will need to pursue an options strategy tailored to your unique needs.
You should perform stock research through use of personal due diligence. You can aide your stock research through services like:
Is M1 Finance Safe?
M1 Finance is safe. M1 Finance is legitimate.
M1 Finance protects your funds through the purchase of FDIC and SIPC insurance coverage. All banking and brokerage institutions purchase these coverages to provide for peace of mind to customers.
M1 Finance is no exception.
You can rest easy knowing that M1 Finance has your funds. If the company should enter financially-exigent circumstances, your funds will remain secure.
They won’t disappear overnight. The coverage comes to you automatically when you open an account with M1 Finance, both their investment brokerage account and their banking account.
What these coverages don’t protect against, however, are investment losses you suffer from poor investment performance.
As an added level of protection on top of these insurance coverages, the platform integrates with Plaid to transfer funds from an outside bank account. Other investing apps like Robinhood, Webull, Acorns use similar technology to provide safety to your money.
This investing app for beginners has the power of automation, so it can rebalance your portfolio and reinvest dividends without user input.
It also offers diversification as well as margin trading in order to help novice and experienced traders alike. The people behind this site want you to succeed and feel safe using their investment platform.
- M1 Finance's Smart Money Management gives you choice and control of how you want to invest automatically, borrow, and spend your money—with available high-yield checking and low borrowing rates.
- Basic account includes an FDIC-insured checking account and an M1 Visa debit card.
- Upgrade to M1 Plus and unlock perks including 1% cash back, 4.50% APY, ATM reimbursements, and 0% international fees.
- Invest in stocks, ETFs, and cryptocurrencies.
- Special Promotion: Open an account and get 3 months free of M1 Plus* ($31.25 value).
- Robo-advisor with self-directed investing capability
- Attractive cash-back and APY opportunities with M1 Plus subscription
- Doesn't support mutual funds
- Doesn't allow trading throughout the trading day (1 trading window for Basic, 2 for M1 Plus)
- High cost for M1 Plus service tier
Related: 9 Best Robo-Advisors for Investing Money Automatically