Until the late 1960s, Canada's banking system lacked an insurance safety net to protect depositors from bank failures. That changed in 1967, when Parliament created the Canadian Deposit Insurance Corporation (CDIC) to address growing public concern about the safety of bank deposits. A federal Crown organization similar to the Federal Deposit Insurance Corporation (FDIC) in the U.S., the CDIC is charged with insuring deposit savings and thereby maintaining public confidence in the nation's financial system. This article covers the basics of CDIC insurance. (To find out more about FDIC insurance and what it covers, read Are Your Bank Deposits Insured?)
How Do I Obtain Coverage?
Canadian citizens do not have to sign up with the CDIC or pay any type of fee to protect their money. The corporation is funded by premiums from member financial institutions in proportion to their insurable deposits, and deposits are automatically insured. If a member company experiences financial losses, depositors do not have to file claims or take any type of action. The CDIC will advise them about reinstatement of funds, which usually occurs within two months of the loss. If a member banking institution is unable to meet its obligations, the CDIC will step in to cover funds up to a maximum of $100,000 per depositor.
Most Canadian banks, loan companies and trust companies are CDIC members. However, some banks, credit unions and foreign banks that have branches in Canada are not. For access to a full member list, see the CDIC's website.
What the CDIC Covers
The corporation insures deposit savings only for eligible products. These include:
- Checking and savings accounts
- Guaranteed investment certificate (GIC) and term-deposit investments that mature less than five years after purchase
- Money orders and drafts
- Certified checks
- Traveler's checks
CDIC insurance does not cover:
- Any type of foreign currency, including U.S.-dollar accounts
- GICs or term deposits that mature more than five years after the purchase date
- Government bonds
- Treasury bills
- Mortgage-backed security investments, stocks and mutual funds
For full lists of products that are covered or excluded by CDIC insurance, visit CDIC.ca. All covered deposits must be in Canadian currency.
CDIC Account Categories
The CDIC has a cap of $100,000 per depositor within each member institution; however, it is possible to increase that limit by diversifying deposits among the six account categories:
- Single accounts under one name
- Joint savings
- Savings held in trust for another person
- Savings held in registered retirement savings plans (RRSPs)
- Savings held in registered retirement income funds (RRIFs)
- Savings used to pay realty tax on mortgage payments
Joint accounts are insured separately from each account holder's personal account. For example, Tom and Tara have a joint account worth $100,000, and Tara also has an account in only her name with a balance of $50,000. In the event of bank failure, Tara would receive $50,000 from the account in her name, and the couple would receive $100,000 from the joint account.
Deposits that are held in trust for another person are insured independently of any additional accounts in the name of either the trustee or beneficiary. So, if Tom and Tara also have a $40,000 term deposit held in trust for their daughter Tina, CDIC would pay another $40,000 in addition to the $150,000 for their other accounts. If the trust has more than one beneficiary, each beneficiary's share must be clearly identified for each person to be reimbursed up to a maximum of $100,000 each. (Trusts are a common part of estate planning. Read Pick The Perfect Trust to learn more.)
Registered plans include deposit investments like RRSPs and RRIFs. Not all registered plans are eligible. Investments must mature in no more than five years, and mutual funds are not covered. (For more insight, read the RRSPs Tutorial.)
Mortgage Tax Payment Accounts
Mortgage tax payment accounts are accounts that depositors use to pay realty taxes toward mortgage properties held at a CDIC institution. As with the other categories, funds in these accounts are insured separately from other savings.
The CDIC's website provides an overview of Canadian bank failures since the corporation's establishment. The surprisingly extensive list is reason enough to take the extra step of making sure your bank is registered as a member of CDIC so that you can be assured of the safety net it provides.