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What is CDIC Insurance? Thumbnail

What is CDIC Insurance?

Investment

You get home one Friday after a long day of work with your paycheque in hand. Of course, you probably have a lot of plans for all that money – paying down debt, going out for supper, maybe getting a new pair of shoes. 

However, if you’re like most people, your first step is probably to put it in your bank account. You may even get direct deposit so you can skip going to the bank. 

But why? Why not just jam it under your mattress and make ‘deposits’ whenever you need to? 

There are many reasons why keeping your money in a bank is better than under a mattress or in an old coffee can buried in your backyard. But, one of the biggest is the Canada Deposit Insurance Corporation’s (CDIC) deposit insurance.

Protecting your money

If you bank at a CDIC member institution, which includes major, national and international banks and federally regulated credit unions, the CDIC automatically insures the money in your account.

So if the worst happens, and the bank goes under, you get your money (or at least a portion) back. 

You can’t say the same about stuffing it in a mattress, or even putting it in your wallet.

What is the Canada Deposit Insurance Corporation (CDIC)?

Launched in 1967, the CDIC is a non-profit Crown corporation set up specifically to protect Canadian’s money without costing them anything. That means you don’t pay for the insurance, not even through your taxes. 

Instead, its 85 member institutions (comprised of the banks that CDIC insurance covers) pay premiums to the CDIC so it can operate.

What does the CDIC cover?

In the event a CDIC-backed bank or financial institution collapses, the CDIC covers up to $100,000 per eligible account. That coverage includes both the principal and any interest in both domestic and foreign currency.

Accounts covered include:

  • Individual accounts    
  • Joint accounts    
  • Registered Retirement Savings Plans (RRSP)
  • Registered Retirement Income Funds (RRIF)    
  • Registered Education Savings Plans (RESP)
  • Registered Disability Savings Plans (RDSP)
  • Tax-Free Savings Accounts (TFSA)    
  • First Home Savings Accounts (FHSA)
  • Trusts

If you have more than one eligible account, the coverage stacks.

Furthermore, if your money is held in an account protected by multiple CDIC members, you will receive coverage from each of the CDIC members.

Example 

Let’s say you hold a joint account and a RRSP at the same financial institution. Each is covered for a maximum of $100,000. That means in the event of a collapse, you’re covered for $200,000.

If the joint account and the RRSP above are protected by two CDIC-member institutions, you would double your coverage, up to $400,000 – that is $200,000 for each bank account.

What doesn’t the CDIC cover?

There are institutions, including provincial credit unions, that the CDIC doesn’t cover. For many of these, the province’s deposit insurer will cover the eligible deposits.

However, even if you are banking with a CDIC partner the CDIC will not cover all losses. Any losses due to fraud or theft are not covered, for example. Neither does the CDIC cover deposits held in:

  • Mutual funds
  • Exchange Traded Funds (ETFs)
  • Cryptocurrencies
  • Stocks
  • Bonds

These investments may be covered by the Canadian Investor Protection Fund (CIPF). If your investments are held in any of the above vehicles, check your financial institution’s website for information on whether they’re covered.

How can I make sure I’m covered?

The easiest way to make sure you’re covered is to look at the list of CDIC-insured banks or check the website for the CDIC logo.

However, it’s important to remember that just because a bank isn’t covered by the CDIC doesn’t mean it’s not covered. As we’ve said above, provincial credit unions, banks, or group caisses are not covered by the CDIC. Instead, they’re covered provincially.

If you bank with a provincial institution, make sure to read up about your province’s insurers so you can be sure your money is covered.

How does it work?

The CDIC covers over $1 trillion in Canadian deposits to maintain a stable financial system in Canada. In the event a financial institution covered by the CDIC fails, the CDIC steps in to support the sale of the affected bank and reimburse depositors.

When they step in, they work to:

  • Protect eligible deposits
  • Maintain critical financial services
  • Protect the economy from fallout
  • Minimize risk to taxpayers

To do this the CDIC may close an institution and reimburse insured deposits, however that’s not the only option.

Instead, it may:

  • Sell shares or assets
  • Amalgamate the financial institution with another
  • Recapitalize the institution
  • Restructure
  • Pursue private solutions

In the 50+ years since its founding, the CDIC has helped over two million account holders maintain deposits in 43 bank failures, proving the system is reliable and safe.