Hannah Logan
Have you ever wondered what happens to your money in the bank if the financial institution you keep it with fails? It’s a good question and a valid fear. After all, many of us might remember hearing stories about our grandparents stuffing money in sock drawers and under the mattress out of fear of trusting the bank.
These days, you can keep your sock drawer reserved for your socks thanks to deposit insurance which, in Canada, is provided by the Canada Deposit Insurance Corporation, more commonly referred to as CDIC.
What is CDIC?
CDIC launched in 1967. It’s not a bank and it’s not a private insurance company. It is a non-profit crown corporation set up to protect Canadians. More than 80 CDIC member institutions fund the organization to ensure Canadians’ deposits in the case of a banking collapse.
What does CDIC mean?
The acronym CDIC stands for Canada Deposit Insurance Corporation. However, you are much more likely to see it written out as CDIC. When you see CDIC on a financial website or any of your finance and banking documents, it means that the financial institution is a CDIC member.
What does CDIC cover?
Since most people have more than one account, CDIC will cover eligible deposits separately. The following seven categories fall under CDIC coverage:
- Deposits held in one name
- Deposits held in more than one name (joint accounts)
- Deposits held in a Registered Retirement Savings Plan (RRSP)
- Deposits held in a Registered Retirement Income Fund (RRIF)
- Deposits held in a Tax-Free Savings Account (TFSA)
- Deposits held in trust
- Deposits held for paying taxes on mortgaged properties
CDIC will cover up to $100,000 per account, including principal and interest. CDIC also covers foreign currencies such as USD.
You can learn more about these specific types of coverage on the official CDIC website.
What does CDIC not cover?
It’s important to note that CDIC doesn’t cover everything. CDIC does not cover any losses due to fraud or theft. CDIC also will not insure mutual funds or stocks. Again, remember CDIC only covers up to $100,000 per eligible account.
» What about your investments?: How Canadian Investor Protection Fund (CIPF) coverage works
How does CDIC insurance work?
CDIC insurance is not a service you need to pay for; it is free. As you are using a CDIC-member financial institution and an account that CDIC covers, you can rest easy knowing that your funds (up to $100,000) are protected. However, you still need to read the fine print and understand how coverage works.
Suppose you have chequing and savings accounts at the same bank with a combined balance of $150,000. If that bank fails, you are only insured for $100,000 because both accounts fall under the CDIC’s “deposits held in one name” standard.
However, if you have a savings account and a TFSA at the same bank, then you are covered for up to $100,000 in each account since they fall under separate categories. Similarly, if you have a chequing account at one bank and a savings account at another and both banks fail, then you can claim both because they are with separate financial institutions.
What happens if the bank or financial institution fails?
Should a bank fail, CDIC serves as a resolution authority for all members. Their objectives in resolution are as follows:
- Protect eligible deposits
- Maintain the flow of critical financial services
- Protect the Canadian economy
- Minimize risk to taxpayers
Tools used in these resolutions may include closing an institution and reimbursing insured deposits. However, these tools also include a sale of shares or assets, amalgamation with another financial institution, recapitalization, restructuring, or private solutions.
For a more detailed breakdown as to what happens in a failure, the CDIC website lays it out quite clearly. However, while the idea of a bank failure is quite stressful, you can take some solace in the following statistic: since the CDIC’s inception in 1967, there have been 43 failures affecting more than 2 million account holders. Nobody under CDIC protection lost a single dollar.
» MORE: How does direct deposit work?
What banks are covered by CDIC?
As stated earlier, there are more than 80 Canadian financial institutions that are members of CDIC. These include some of Canada’s big banks such as the Bank of Montreal, RBC, and CIBC as well as online banks like EQ Bank and Tangerine Bank, as well as some trust companies, loan companies and federal credit unions. You can find the complete list here. You can also keep an eye out for the CDIC badge. Members will display this badge on their website, app, and at their physical branch locations.
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