What is the CDIC?

       Most people who buy Guaranteed Investment Certificates (GICs) understand that their money is protected by insurance but are unsure of the details. Here are some of the finer points of the Canadian Deposit Insurance Corporation (CDIC) and how their coverage helps Canadians avoid loss.

How it works

        The CDIC is a Crown corporation that protects deposits made with member institutions in the case of the institution’s insolvency. CDIC members include many banks, federally regulated credit unions, loan companies and trust companies. Presently, 83 financial institutions are members of the CDIC.

        Deposits of up to $100,000 per issuer, per account are protected. This is an important distinction, and one that many people do not fully understand. For example, a person could have a GIC for $100,000 with Home Trust in an individual account in their name, plus another $100,000 GIC with Home Trust in a joint account, and both would be fully insured.

        To meet the requirements for coverage, the original maturity date of the GIC must be five years or less. Additionally, interest earned on a GIC that bumps the balance over $100,000 in a single account is not insured.

Types of accounts

        Aside from GICs, cash up to $100,000 in Canadian dollar-denominated savings and chequing accounts are also covered. Cash in US-denominated accounts is not covered. Other investments such as bonds, mutual funds and stocks are also not covered.

        Along with individual and joint accounts, GICs in registered accounts are also covered. These include Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), Registered Retirement Income Funds (RRIFs) and similar accounts.

        Trust accounts are covered on the basis of beneficiary designation, not overall account balance. For example, if a trust account has $500,000 with $100,000 allocated to five different beneficiaries, all of the money will be covered. Due to the size and nature of most trust accounts, this is a helpful feature.

Why the CDIC is important

        The CDIC is very important to investors, especially those who are very risk-averse, as it gives them peace of mind. In fact, since the inception of the CDIC in 1967 and within the specified parameters, no Canadian has lost money due to the failure of a CDIC member.

        The CDIC is also important to financial institutions. Because deposits are protected, it negates the need for investors to rush to pull their money from, or “put a run on” a bank that looks to be in trouble. If the bank is CDIC insured, its deposits are covered.

        Additionally, if a member institution finds itself in trouble, the CDIC will assist in selling it to another financial institution. The money in the troubled bank’s accounts will transfer to the new bank.

Check registration

         As stated above, not every company offering GICs or high-interest savings accounts are CDIC insured. Investors can protect themselves by verifying registration on the CDIC’s website, www.cdic.ca, which provides a full list of their members.

        Sometimes, obscure financial institutions offer GICs with attractive interest rates. Be sure to check the CDIC website to ensure that deposits are protected.

Final thoughts

        There are other insurances available to protect investors. The Canadian Investor Protection Fund (CIPF) protects against insolvency of all Dealer members of the Investment Industry Regulatory Organization of Canada (IIROC) to a maximum of $1,000,000 per account.

        Provincially-regulated credit unions domiciled in BC also have special deposit insurance rules. All deposits and non-equity shares with BC Credit Unions are insured by the Credit Union Deposit Insurance Corporation (CUDIC) to an unlimited amount.  

        If you would like more information about any of the insurances available to you and your accounts, contact your financial advisor. He or she can explain what is covered and help ensure your deposits are safe and sound.