Canada Deposit Insurance Corporation

Amidst the economic ups and downs in recent years, some are worried about the security of their money deposited in banks. This is especially true considering the collapse of Silicon Valley Bank and others in the United States. Furthermore, many hedge funds have shorted, or “bet against”, Toronto Dominion Bank in the past month. This is sparking concern about whether or not the bank is going to collapse. If TD were to fail, it may mean trouble for the other big five banks in Canada. While unlikely, it’s not impossible that a Canadian bank could collapse, so how is your money protected? This is where Canada Deposit Insurance Corporation comes into play.

Canada Deposit Insurance Corporation

The Canada Deposit Insurance Corporation, or CDIC for short, insures all Canadian’s deposited money in the event of a bank failure. Continue reading to learn more about what’s covered, how deposit insurance works and more.

What is deposit insurance?

Deposit insurance provides a payout to individuals who deposited their money at a bank in the event of failure or collapse. This unique insurance guarantees the well-being of banks, their customers, and the economy.

You might be wondering, isn’t my deposited money sitting at the bank? Why do I need insurance? Well, technically speaking, your money is not sitting in an individual account and is not always available to withdraw, despite what you might see when you login to your bank. Rather, the bank assumes most do not need all their money constantly and right away. So, they leverage your deposited money to earn interest and investment income. However, sometimes banks make poor investment decisions and fail as a result. If this were to happen, some individuals may not receive their deposits back. This is why deposit insurance is necessary.

Related Reading: Secured Credit Card Canada: A Complete Guide

What does the Canada Deposit Insurance Corporation do?

The Canadian Deposit Insurance Corporation (CDIC) is an enterprise of the Canadian government. The parliament created this independent crown corporation in 1967 to achieve the following:

  • To provide insurance coverage on the deposits of member banks
  • Provide financial coverage for losses on all or some deposits
  • Aid the stability of the Canadian finance sector

Like the Federal Deposit Insurance Corporation in the U.S., the CDIC is funded by its members, the insured banks. Thus, it does not get allocated public funds. In addition, regular citizens do not need to make a special application for coverage or pay premiums. CDIC insures the banks, not the individual directly. If the bank fails, they bail out the bank so they can repay their depositors.

Similarly, when a bank fails, affected customers do not need to file an insurance claim. Instead, the deposit insurance kicks in automatically when a member bank crashes.

Some of the standard members of the Canadian Deposit Insurance Corporation include:

  • Banks
  • Loan and trust companies
  • Federal-regulated credit unions

What does CDIC cover?

Generally, the Canadian Deposit Insurance Corporation insures deposits up to $100,000. However, the catch is you are only insured up to $100,000 for each type of account, but more on that later. Some of the eligible deposit products are money saved in:

Below, are some of the coverage categories of the Canada Deposit Insurance Corporation:

Deposits Held in One Name

Supposing a member bank of the CDIC fails, and a customer has several accounts with that bank. In that case, the corporation will merge savings, chequing accounts, and so on, into one. The only condition is that all these accounts are registered in one name. These accounts are merged to fall under the $100,000 coverage limit per institution.

Let’s say someone has a chequing and savings account with one bank, the balances are $10,000 and $100,000, respectively. If the bank fails, the depositor would only receive $100,000 from CDIC, not the full $110,000. This is because the two accounts would be insured together, not separately.

Deposits in Multiple Names

Joint accounts with different people as owners enjoy different types of deposit protection. For example, deposits held in one account holder’s name do not count in this category. Thus, such a person may be eligible under two different categories

Let’s say a person has two joint savings accounts, one with their child and another with their parent. If the financial institution fails, the person is eligible for up to $100,000 on each account because they’re joint.

Deposits Held in Trust

The CDIC protects deposits held in trust as a separate class. It calculates them differently from the trustee’s other deposits in the same bank. But, the trustee or beneficiary must meet some conditions before it can apply:

  • A valid trust exists, whether documented or not. The trust must also follow the laws of the province where created.
  • The trustee/beneficiary information must have been on the bank’s records. That is, its existing records before it failed.

However, the requirements may vary depending on what kind of trustee is affected. For example, the trustee may be a nominee broker holding in trust for clients. They may even be a elder woman depositing for her grandkids. Thus, the CDIC has separate rules for each trustee, whether a professional trustee or not.

Related Reading: 8 Best Free Bank Accounts in Canada

RESP Deposits

RESP is short for Registered Education Savings Plan. A portfolio in an RESP may contain funds in a term deposit, stocks, and mutual bonds. Only the funds in the term deposit will count towards the $100,000 insurance protection. The coverage limit applies per beneficiary to the savings plan. 

For example, let’s assume a person has the following funds in an RESP in a financial institution:

  • A term deposit in an RESP for Child A – $30,000
  • A Guaranteed Insurance Certificate (GIC) in an RESP for Child B – $20,000
  • A term deposit in an RESP for Child C – $170,000

These amount to $220,000, but the holder will receive coverage of $150,000 instead of $100,000. The CDIC will also pay $30,000 for the first child because the amount falls within the $100,000 limit. Child B gets $20,000 for the same reason, while Child C gets $100,000 out of $170,000. 

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RDSP Deposits

A Registered Disability Savings Plan is considered separately from other insurance categories. Like in an RESP, each beneficiary has a coverage limit of $100,000 per financial institution. But, only eligible deposit products count towards the total eligible sum. 

Assuming each portfolio holds $45,000 and $120,000 for two beneficiaries, respectively. In this case, the CDIC protects only $145,000 of the combined sums. 

RRSP Deposits

RRSP stands for Registered Retirement Savings Plan. Deposits in this category enjoy a different type of protection. A portfolio here may contain various deposit items. But, only those in the eligible deposit list are covered. 

For example, the coverage generally applies to deposits in savings accounts. But, it does not cover stocks and bonds because these are investments, not deposits. Special RRSPs are also combined with the eligible deposits in regular RRSPs. This is done to determine how much of the coverage sum applies.

For instance, let’s say a person has a Restricted Locked-In Savings Plan (RLSP). This is different from deposits in a regular retirement savings plan. Both deposits are combined, and the customer may get up to $100,000 if there is a bank failure. So, if the combined amount is $400,000, the customer will only get $100,000. 

RRIF Deposits

RRIF means Registered Retirement Income Fund and has separate protection from other categories. This means customers get different benefits if they have funds in an RRIF and other places. But as always, only eligible deposit products are counted towards the $100,000 payout. An RRIF may consist of different funds.

The eligible deposits are combined when the holder has all these funds in one bank. Then the holder gets up to $100,000 in insurance. Even if the total amounts to $150,000, the holder receives only the $100,000 maximum. But remember, this is only for cash deposits in the fund.

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TFSA Deposits

TFSA means Tax-Free Savings Account. The deposits in these accounts enjoy a special class of insurance protection. However, the CDIC will only cover the eligible deposit items in the portfolio. Suppose a person’s total portfolio amounts to $300,000, and the eligible deposits are $200,000. In that case, the person gets $100,000 from the CDIC.

FHSA Deposits

A First Home Savings Account (FHSA) is a separate class of insurance coverage. As always, the eligible product in an FHSA portfolio enjoys insurance coverage up to $100,000, similar to other registered accounts.

Related Reading: What is Home Insurance?

What does CDIC not cover?

 The Canada Deposit Insurance Corporation does not cover the following deposit items:

  • Stocks 
  • Bonds
  • Mutual funds
  • Cryptocurrencies
  • Exchange Traded Funds (ETFs)
  • Losses arising from fraud or theft

Investments, such as stocks and bonds, are often still in your ownership despite a bank’s failure. A bank may facilitate access to such investments, but if they collapse, you will still own those assets. Remember, CDIC only insures cash deposits held within a bank — not investments.

What banks are covered by CDIC?

 The Canada Deposit Insurance Corporation covers many banks and financial institutions in Canada. Some of them include: 

  • Bank of Montreal
  • Bank of Nova Scotia (The)
  • Bank of Nova Scotia Trust Company (The)
  • Bridgewater Bank
  • Canadian Imperial Bank of Commerce
  • Canadian Tire Bank
  • Canadian Western Bank
  • Cidel Bank Canada
  • Citibank Canada
  • Digital Commerce Bank
  • Fairstone Bank of Canada
  • First Nations Bank of Canada
  • Habib Canadian Bank
  • Haventree Bank
  • Home Bank
  • ICICI Bank Canada
  • Industrial Alliance Trust Inc.
  • KEB Hana Bank Canada
  • Laurentian Bank of Canada
  • Manulife Bank of Canada
  • Manulife Trust Company
  • MCAN Mortgage Corporation
  • And many more

How much money is protected by CDIC?

The CDIC protects up to $100,000 of customer deposits in its member institutions. That is, provided the deposits meet the eligibility requirements. Note that the insurance coverage applies to both the principal and interest sum. In addition, there are different classes of insurance. You may be entitled to more money from CDIC in the event of bank failure if you hold numerous account types with cash deposits.

How do I contact Canada Deposit Insurance Corporation?

There are many ways to contact the Canada Deposit Insurance Corporation, including:

Am I covered by the CDIC?

It is generally advisable to hold accounts with CDIC-insured banks. The reason is that these banks offer guaranteed protection that others cannot provide. If you’re unsure if your bank is covered by CDIC, check out the list of members. If your bank is listed there, then you’re covered by the Canada Deposit Insurance Corporation. Finally, if you do not see your bank on the list, contact the CDIC and ask about deposit insurance protection. 

Read More: Types of Insurance: A Guide for Canadians

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