Insurance is one of those things you don’t really need until you absolutely, positively need it. It’s a vital component of leading a safe and secure financial life. Insuring our homes, cars and selves is a standard practice, but imagine for a moment if you had no insurance covering the funds in your bank account. It is terrible to not have insurance for other things, but what would you do if there was no way to protect the funds you use to pay for them? Luckily, there’s already a safety net in place that protects much of our hard-earned money, the Canada Deposit Insurance Corporation (CDIC).
I don’t pay for anything, though—do I have insurance?—you might wonder. Actually, you do! Keep reading to understand more about deposit insurance.
What is CDIC?
CDIC is a crown corporation. Its purpose is to provide deposit insurance, strengthen the financial system, and resolve issues with member institutions while minimizing losses.
The Canadian government established the CDIC in 1967 after two major bank failures. First, Atlantic Acceptance Company failed in 1965. Then, Prudential Finance Company followed a year later. Although these weren’t the only bank failures, they served as a turning point for many others.
The Government of Canada tried to restore people’s confidence in the financial system. They wanted to stop customers from losing their life savings if their bank failed. So, they mandated the CDIC to guarantee deposits at Canadian banks. Now, the CRA and CDIC work hard to protect your money.
Deposits were initially insured for a maximum of $20,000. Today, CDIC member institutions insure up to $100,000 in each eligible category.
How does the CDIC work?
You receive $100,000 of coverage for every category you have deposits in.
When it comes to coverage, your deposits get divided into the defined categories, not the accounts you hold them in.
For example, if your savings and chequing accounts each have $100,000, you get $100,000 of total coverage. That is because they are in the same category of “deposits held in one name.”
If you keep $100,000 in your savings account and $100,000 in a TFSA savings account, you get a total of $200,000 of coverage. That’s because your money is now in two categories, “deposits held in one name” and also “deposits held in a TFSA.”
You do not need to apply for CDIC insurance coverage. It is free and automatic as long as your bank or credit union is a CDIC member. Plus, the CDIC teams up with the CRA to make sure RRSP holders get paid back without any tax problems.
How to find out if your money is insured
CDIC membership is necessary for major banks and other federally regulated loan and trust companies. That said, not all banks qualify.
To get any coverage, your bank has to be a CDIC member. The 86 member banks include the Big Five (BMO, CIBC, RBC, Scotiabank, TD) and some online-only ones like EQ Bank and Alterna Bank. See the full list to find out which financial institutions the CDIC insures.
Eligible deposits have insurance for up to $100,000 in each of the categories. The word eligible is extremely important here. Let’s have a look at the insured categories and how you would get your money back under each.
Just like any other insurance, the CDIC has its limits on how much it pays out. If your financial provider fails, they’ll guarantee up to $100,000 in deposits in each one of the seven categories. It’s possible for you to receive even more, depending on how you spread your money between different accounts and institutions:
- Chequing accounts
- Savings accounts
- Guaranteed Investment Certificates (GIC)
- Tax-Free Savings Accounts (TFSA)
- Registered Education Savings Plans (RESP)
- Deposits held in trust accounts
- Registered Retirement Savings Plans (RRSP)
- Deposits you hold for paying the taxes on mortgaged properties
- Registered Retirement Income Funds (RRIF)
CDIC also insures foreign currency deposits. In the case of foreign currency, the Bank of Canada’s exchange rate at the time of failure determines the coverage limit.
What’s not covered
The CDIC does not cover any of the following deposit categories:
- Stock investments
- Exchange Traded Funds (ETFs)
- Mutual funds
- Bond investments
- Deposits at non-CDIC-insured institutions
Not all investments have insurance but, the Canadian Investor Protection Fund (CIPF) may insure cash balances you hold. Your brokerage account, for example if it’s with a CIPF-member institution. The CIPF is a non-profit run by the government, just like the CDIC. Its members pay to be protected if their investment firm goes bankrupt.
On the other hand, if your investment, like a stock, fails, you have no protection.
Calculating how much you’re covered for
Now that you understand how the CDIC works and what deposits have insurance, you’re ready to determine your coverage.
Don’t like math? That’s not an issue. The CDIC has designed a helpful calculator you can use to determine the maximum coverage you qualify for.
You’ll get the most coverage if you understand the $100,000 limit rule. Splitting your money into different categories gives you more protection.
Remember, CDIC coverage is per person, not per household. If more than one person from your house banks at the same place, they each have insured deposits.
Most banks in Canada have the security of deposit insurance. As long as your bank or credit union is CDIC insured and your deposits qualify, you’re covered if they go under. That means you can focus on finding the savings account that works best for you.
Relieved to hear your money is protected, but still stressed about your finances because of debt? Talk to one of our qualified credit counsellors today for a personalized debt relief plan.