What Is the Canada Deposit Insurance Corporation (CDIC)?
The Canada Deposit Insurance Corporation (CDIC) is a federal crown corporation that provides deposit insurance to customers who hold funds at commercial banking institutions.
Its role is to reimburse depositors for the money they lose in the event of a bank failure.
A bank failure refers to a scenario where a banking institution becomes insolvent or lacks sufficient cash needed to service its debt obligations to depositors and creditors.
Canada’s banking system is among the most robust, stable, and well-regulated globally.
As a result, bank failures are a rarity in the country.
Still, they have occurred in the past.
And if depositors are left with no recourse to recover their lost money, the effects can be devastating both on a personal and national scale.
An economy can’t thrive if the population has little trust in the ability of banks to keep their money safe and secure.
For this very reason, the federal government instituted the CDIC – to act as a last resort for depositors to reclaim their money from a collapsed bank.
As a crown corporation, the CDIC is backed by the Government of Canada, so it’s effectively shielded from bankruptcy.
Since its inception on March 4, 1967, the CDIC has compensated every Canadian that has lost money in a bank failure.
Key Insight
A total of 43 financial institutions have failed in Canada since 1967.
How Does CDIC Insurance Work?
The CDIC covers depositor funds held at CDIC member institutions, of which there are more than 80 in the country.
All the well-known and established banking brands in Canada qualify for CDIC protection.
These include the Big Five banks like Scotiabank and Toronto-Dominion Bank (TD) and online-only banks like EQ Bank and Tangerine Bank.
Unsure of whether your banking institution is a CDIC member? If so, you can visit the CDIC website, which provides a complete list.
Alternatively, you can contact the CDIC directly to obtain confirmation.
There’s no application form to fill out or personal eligibility criteria to meet to qualify for CDIC coverage.
Once you open an account at a bank and make deposits, your money is automatically insured.
You’re also not responsible for paying any premiums to the CDIC to maintain your coverage.
This duty is fulfilled entirely by your bank.
Eligible deposits are divided into seven categories, all of which are insured separately.
This means that the CDIC will guarantee money you hold in up to seven different account types.
As per the CDIC, these categories are:
- Deposits held in one name
Coverage applies to deposits in a chequing account, savings account, and unregistered term deposits held by one depositor. The depositor can also be a corporation or a formal association such as a labour union. - Deposits held in more than one name
Coverage applies to joint deposits held by two or more people, whether a chequing or savings account. For a joint account to be eligible, the CDIC member institution must keep records that prove that the deposits are owned jointly, along with the name and address of each owner listed. - Deposits held in a registered retirement savings plan (RRSP)
In addition to a standard RRSP account, locked-in retirement accounts (LIRA) and spousal RRSP also qualify for coverage. CDIC insurance protection is based on who owns the RRSP account(s) rather than who makes contributions (as is the case with a spousal RRSP). - Deposits held in a registered retirement income fund (RRIF)
In addition to a standard RRIF, other RRIF variants also qualify for coverage. These are life income funds (LIF), locked-in retirement income funds (LRIF), and restricted life income funds (RLIF). - Deposits held in a tax-free savings account (TFSA)
Coverage applies to eligible deposits held in a TFSA account. - Deposits held in trust
Coverage applies to deposits held in a trust as long as specific disclosure rules are observed. - Deposits held for paying taxes on mortgages properties
Coverage applies to deposits held strictly to pay property tax on mortgaged properties.
How Much Coverage Does the CDIC Provide?
The CDIC insures eligible deposits for up to $100,000 in each of the seven categories.
As a result, the maximum compensation you’re entitled to would be $700,000, provided your money is spread evenly across each deposit category.
It’s vital to keep in mind that while you can maintain multiple accounts under each category, the $100,000 coverage limit applies to all your accounts combined in that category.
For example, let’s assume you have $90,000 in a personal chequing account and $30,000 in a personal savings account for a total of $120,000.
In this case, your maximum coverage would be limited to $100,000 as your chequing and savings accounts are part of the same category, “deposits held in one name.”
What Does CDIC Cover?
The CDIC only covers money held as eligible deposits, which includes:
- Chequing accounts
- Savings accounts
- Guaranteed investment certificates (including index-linked GICs) and other term deposits
- Foreign currency
Money orders, bank drafts, and certified cheques issued by CDIC member institutions also qualify for deposit insurance protection.
Did You Know?
As of April 30, 2020, term deposits of more than five years qualify for CDIC protection.
What Does CDIC Exclude?
The CDIC doesn’t cover funds invested in risky and volatile financial products.
These include:
- Mutual funds
- Stocks
- Bonds
- Exchange-traded funds (ETF)
- Cryptocurrencies
It’s crucial to understand the implications these restrictions have on the deposits you keep in certain accounts.
Suppose that your RRSP portfolio consists of the following investments:
- $40,000 in ETFs
- $15,000 in bonds
- $10,000 in GICs
In this case, only the $10,000 invested in GICs would qualify for CDIC protection.
What If I Have More Than $100,000 At One Bank?
The CDIC insures eligible deposits for up to $100,000 per category.
So, what happens if your total assets exceed this limit in one of the categories?
In short, should your bank go under, you’d receive no reimbursement for the excess amount.
Not a pleasant scenario to contemplate!
A notable characteristic of the $100,000 category limit is that it applies only to money you hold in one bank.
As a result, by spreading your money across multiple banking institutions, you can increase your level of protection.
Let’s say that you reach the $100,000 CDIC coverage threshold with your Scotiabank savings account.
In that case, you can open a new savings account at CIBC and continue to make deposits for up to another $100,000.
You can receive protection for up to $200,000 across two savings accounts by employing this tactic.
What Happens If a Financial Institution Fails?
Should a financial institution fail, the CDIC will immediately launch its reimbursement process to ensure depositors are compensated for their losses accordingly.
As a depositor, you’re not required to file an insurance claim – the CDIC has access to all the information it needs to issue payouts to affected customers.
The CDIC would issue a cheque to you for the amount you’re entitled to receive.
Typically, the process takes a few days to complete if you hold the bulk of your money in demand deposits, such as chequing and savings accounts.
The CDIC temporarily withholds money held in RRSP, RRIF, and TFSA for an extended period.
The organization would contact you directly and inform you of the steps to transfer your funds to a new institution without triggering any adverse tax consequences.
