Most people obtain insurance for something in the course of their lifetimes. Whether it’s car insurance, home insurance, or life insurance, people want to feel protected. It’s important to have a back-up plan in case things go south, and insurance offers you that.
Have you ever thought about whether or not your money in the bank is protected? What happens if your bank loses your money, or if they go bankrupt? Let’s take a look at the insurance corporation that covers money in the bank.
Who is the Canada Deposit Insurance Corporation?
The Canada Deposit Insurance Corporation, more commonly known as the CDIC, is a corporation that insures, or protects, the money you have in the bank. They insure over 80 financial institutions and will reimburse bank customers like yourself if the institution goes bankrupt or insolvent.
History of Canada Deposit Insurance Corporation (CDIC)
In 1967, the CDIC was established as an independent Crown corporation. The previous year, 1968, was one of financial distress for many banks, which resulted in many consumers losing confidence in the Canadian financial system. When first established, the CDIC insured $17 billion (with a coverage limit of $20,000) in deposits in every federal bank, trust and loan company, as well as in provincial trust and loan companies.
A coverage limit of $20,000 might seem small; however, the CDIC has since evolved to keep up with the financial system. Now, the CDIC insures over $800 billion in deposits, with a coverage limit of $100,000 for each deposit category, per CDIC member. The CDIC has been protecting Canadians’ money for the last 53 years and continues to adapt to meet changing needs and circumstances.
What Is and Is Not Insured By The CDIC?
To be clear, the CDIC does not insure all financial products that you may have at your financial institution. Please see the chart below to see what’s covered and what isn’t covered.
|Chequing, Savings and Tax-Free Savings Accounts||Mutual Funds, Stocks, Bonds|
|Guaranteed Investment Certificates (GICs) and other term deposits||Exchange-Traded Funds (ETFs)|
|Foreign Currency (ie, $U.S.)||Cryptocurrencies|
|Registered Retirement Savings Plans|
|Registered Retirement Income Funds (RRIF)|
|Trust Funds (ie. Registered Education Savings Plans)|
How Does It Work?
The CDIC insures a maximum of $100,000 per insurance category, per institution. Does this mean that you are only eligible to be covered for $100,000 in your personal account? No.
Let’s say you have a personal account with $100,000, a joint account with your partner worth $100,000, as well as a Tax-Free Savings Account (TFSA) with $100,000 in it. The CDIC will cover all of these funds (up to $100,000 each) because they are part of different insurance categories. To maximize your coverage, most experts recommend against keeping all of your funds in one account. It’s best to spread them out across different insurance categories, as shown in the chart below:
|Type of Account/Fund||Coverage by CDIC|
|Personal Chequing Account||$100,000|
|Joint Account with Another||$100,000|
|Savings in Trust||$100,000|
|Retirement Savings (RRSP)||$100,000|
|Retirement Income (RRIF)||$100,000|
If you’re still wondering how much the CDIC could cover from your accounts, take a look at the CDIC’s online calculator.
What Happens If a Bank Insured By The CDIC Becomes Insolvent?
Although a financial crisis might seem distant to us, there have been instances in history that warranted the CDIC’s help. Specifically, between 1967 and 1996, there were 43 cases of bank insolvency. Some institutions that faced insolvency between those years include the Commonwealth Trust Company, Saskatchewan Trust Company, and Seaway Trust Company. Thankfully, there have been no insolvencies among CDIC members since 1996.
So, what happens to your money if your bank fails or becomes insolvent? The good news is that the banks or their customers do not need to file any claims. The CDIC will contact you and reimburse your money within days.
The CDIC will automatically reimburse insured deposits up to $100,000 (which includes both principal and interest) per insurance category, via cheque. For anything that isn’t covered by the CDIC (stocks, mutual funds, etc.), depositors would be eligible to file a claim with the liquidation firm.
However, it is important to note that if your financial institution closes, you will no longer have access to any loans or lines of credit, and you would need to seek these services from another financial institution.
Are All Banks CDIC Members?
Many banks and financial institutions are CDIC members – the CDIC covers over 80 institutions. However, not all banks are members. For a complete list of all the members who are covered by the CDIC visit their official website.
The CDIC Act is a piece of legislation that outlines how different deposits receive insurance under the deposit insurance framework. CDIC members, usually banks, must meet regulatory requirements to ensure that their funds are protected by the CDIC. Legislation, by-laws, guidance, and forms on the CDIC website has helpful information to help banks comply with these requirements.
We trust banks with a massive responsibility in managing our money and our savings. While banks are usually competent enough to manage your funds, the CDIC protects you in the event that banks cannot take care of your money anymore.