Defunct on-line broker

[Tommy]

What happens to a customer's mutual fund and stock holdings if an on-line broker goes out of business?

[LanaMay]

Your stocks and funds are still yours. Chances are that another broker will buy your holdings. In other words if etrade goes belly up then Schwab or TD Ameritrade or someone else will purchase etrades holdings. You still own that stock - etrade is simply the holding company.

As for any cash that you might have in that account, it is FDIC insured up to $100,000 just like any other bank. It might take you a while to get that money, but you are insured by the government.