CDIC : Understanding How Deposit Insurance Works In Canada

Over the years, Canada’s banking system has been consistently ranked as one of the soundest in the world. Despite this, Canadian financial institutions are also vulnerable to the type of bank failures that we’ve witnessed around the world.

If or when this happens, you should be comforted that your deposits are protected by the Canada Deposit Insurance Corporation (CDIC).

What is Canada Deposit Insurance Corporation?

CDIC was created by an act of parliament in 1967 for the purpose of protecting Canadian depositors in the event of a bank failure.

This protection, or coverage, is automatic for all deposits made at participating member institutions, like commercial banks, federally regulated credit unions and, loans and trust companies. As at February 2021, there are over 80 member institutions of CDIC.

Since its creation, 43 members have failed with the last failure happening in 1996. And in all the failures, CDIC was able to protect the eligible deposits of Canadians in line with the coverage limits effective at the time.

Why CDIC?

Here are the 2 major objectives of CDIC

  1. Promote confidence in the Canadian financial system
  2. Reduce the risk of bank runs by assuring Canadians of the safety of their hard-earned money.

How Does CDIC Protection Work?

It is important to understand how CDIC’s coverage work so you’re aware of any risk you may be exposed to if your financial provider fails.

The CDIC protection works by providing coverage of up to $100,000 for eligible deposits at member institutions across the different insured categories. That is, the limit is per insured category with each member, so your protection is not limited to just $100,000.

Many Canadians have multiple accounts across different account types. So, if a bank fails, the accounts will be group into one of the 7 categories before the limit is applied.

This means you could be protected by up to $700,000 or more at each member, if you have deposits in all the 7 categories.

The 7 insured categories are:

  1. Deposits held in one name         
  2. Deposits held in more than one name: This refers to joint accounts, for example a joint savings account with your spouse. Interestingly, the limit is per set of joint owners. So, you can have the $100,000 coverage limit on your joint savings account with a child, and another $100,000 on your joint accounts with your spouse.
  3. Deposits held in an RRSP (Also includes Locked-In Retirement Account (LIRA) and Spousal RRSP)
  4. Deposits held in a TFSA
  5. Deposits held in an RRIF
  6. Deposits held in trust
  7. Deposits held for paying tax payments on mortgaged properties (that is, deposits held in a separate account to pay property taxes)
The 7 insured categories covered by CDIC

These categories will be changing by April 2022 in line with the upcoming changes planned by CDIC to strengthen its’ protection. See details below.

What Is Covered?

These are the deposits that are eligible for CDIC coverage.

  • Savings Accounts (Regular or High-interest Savings)
  • Chequing Accounts
  • Guaranteed Investment Certificates (GICs) and other term deposits (irrespective of the term1)
  • Foreign Currency Deposits1
  • Bank drafts or money orders
  • Cheques

These eligible deposits can be help in unregistered accounts or in registered plans like Tax-Free Savings Accounts (TFSAs), Registered-Retirement Savings Plans (RRSPs)

1 Before April 30, 2020, foreign currency deposits and GICs or term deposits with terms above 5 years were not covered.

What is not covered?

Not every deposits or investments held at financial institutions are covered.

In general, investment accounts or products are not covered by CDIC, but may be covered by Canadian Investor Protection Fund (CIPF). These include:

  • Mutual Funds
  • Exchange-Traded Funds (ETFs)
  • Cryptocurrencies
  • Bonds and Treasury Bills

And of course, all deposits even if eligible, that are held with non-members of CDIC are not covered.

Coverage Calculator

If this is still a little confusing or you simply want to confirm what exactly will be covered by CDIC, you can use the coverage calculator here.

The tool will guide you through the steps for calculating your total coverage and you’ll get a summary once done.

Unprotected by GIC is made up of ineligible deposits like mutual funds and any amounts over the $100,000 limit.

See the picture below for further breakdown of each category to understand how the unprotected amount was calculated.

The total protected under the Joint category is over $100,000 because the limit is per set of joint owners. In this example, there are 2 sets of joint owners, each set with it’s own limit of $100,000.

How to maximize CDIC Protection

We wrote a detailed post about how you can maximize the CDIC protection for your deposits, with examples to make things clearer and easy to follow.

In summary, here are 3 strategies you can use to maximize your CDIC protection:

  1. Save in different financial institutions/CDIC members
  2. Consider joint accounts
  3. Spread your money across the other insured categories

Related Post: How To Maximize CDIC Coverage On Your Savings

Where Does CDIC Funding Come From?

Though a federal crown corporation, CDIC’s operations are not funded by public funds or tax dollars. It is funded in full by the premiums received from its member institutions.

Each member pays a premium calculated based on its total insured deposits and a premium rate (in accordance with the CDIC’s Differential Premiums By-law.)

The premiums are invested in investment grade assets, mostly government securities, and earns interest income that funds CDIC’s operations. CDIC is subject to federal income tax and this interest income is the major source of its taxable income. The actual premium paid by its members are, however, not taxable.

As at Dec 2019, the total deposits under CDIC’s coverage, called insured deposits, was $852 billon, with $5.6 billion available to cover any losses arising from members’ failures.

This means that for every $100 in deposit at any member institution, CDIC had a funding of about 65 cents available to cover the losses. The target is 100 basis points, or $1, and the corporation is projecting it will be able to achieve this in 2025/2026.

While this coverage may appear low, you should understand that it is very unlikely for all members to fail at once. And if CDIC is unable to cover all the losses with its own funding, the CDIC Act gives it 2 additional sources of funding to fall back on:

  1. Additional Funding through its authority to borrow: The borrowing limit is adjusted annually in line with the growth in insured deposits. The limit was $25 billion as of December 2019
  2. Supplemental Borrowing can be authorized by Parliament or by the Minister of Finance out of the Consolidated Revenue Fund.

Upcoming Changes To Strengthen CDIC’s Coverage

To further strengthen the protection available to Canadian depositors, the corporation made some significant changes to its policy effective April 30, 2020, with more to come by April 2021 (now deferred to April 2022 due to the economic and market uncertainty caused by Covid-19).

The changes that became effective in April 2020 were:

  1. 5-year limit on Guaranteed Insurance Certificates (GICs) no longer applies
  2. Foreign currency deposits are now covered
  3. Travellers’ cheques became ineligible

The changes scheduled to become effective in April 2022 include:

  1. Separate coverage for up to $100,000 in eligible deposits held under Registered Education Savings Plans (RESPs)
  2. Separate coverage for up to $100,000 in eligible deposits held under Registered Disability Savings Plans (RDSPs)
  3. Removal of separate coverage for deposits in mortgage tax accounts (these deposits will be combined with eligible deposits in other categories such as savings in one name)
  4. New requirements for deposits held in trusts, including nominee brokered deposits that enhance CDIC’s ability to extend protection to these deposits and reimburse them quickly after a CDIC member failure.

After the changes, the insured categories will increase from the current number of 7 to 8, with coverage for mortgage tax accounts dropped and coverages for RESPs and RDSPs included.

These changes are meant to reflect the changes in financial services sector, their products and services, and how Canadian households now save.


Some FAQs

What happens if a CDIC member fails?

You will be contacted by CDIC automatically and your deposit, plus interest if any, will be reimbursed to you. You don’t have to apply for it.

From your end, make sure your contact information is always up to date at your financial institutions.

How is CDIC funded?

CDIC is funded by premium payments by its member institutions, but it can draw on additional sources of funding if necessary.

See details at “Where does CDIC funding come from?” section above.

Are Guaranteed Investment Certificates (GICs) covered?

Yes, GICs bought from member financial institutions are covered. For non-members, you can check the coverage offered by their provincial deposit insurers.

Does CDIC cover GICs with terms above 5-year?

Effective April 30, 2020, CDIC removed the limitation on longer term GICs and term deposits by removing the 5-year term restriction. So, all GICs irrespective of the term are now eligible deposits.

Are foreign currency deposits covered by CDIC?

Yes, they are. Foreign currency deposits also became eligible deposits for CDIC coverage effective April 30, 2020. All foreign currencies are covered.

In the event of a failure, the Canadian equivalent of the foreign deposit will be paid, converted at the conversion rates published by the Bank of Canada (BOC) on the date of failure. And if BOC does not publish rates for the currency, the failed member’s rate will be used.

Is CDIC coverage per account?

Not exactly. Coverage is per insured depositor in each of the insured categories at each member institution.

Does CDIC cover Digital Currencies?

Digital currencies or cryptocurrencies, like bitcoin, are not covered by CDIC.

What is covered in my Registered Plans?

While CDIC has separate insured categories for some registered plans such as RRSP, RRIF and TFSA, with plans to add RESP and RDSP in 2022. Note that only eligible deposits in those plans held at a CDIC member will be covered.

So, your mutual funds, stocks or bonds will not be covered but GICs or savings accounts held in the plans are covered.

What is a CDIC member institution?

All federally regulated deposit-taking institutions such as banks, credit unions, trust companies and loans companies are CDIC members.
Membership can not be paused or suspended as long as the institutions continue to receive deposit from Canadians

Does CDIC insurance cover Credit Unions?

Yes, if it is a federally regulated credit union. No, otherwise.

For credit unions regulated at the provincial level, the deposit insurance limit and rules will vary depending on the provincial deposit insurer’s policy.

For example, Ontario has a coverage limit of $250,000 and unlimited protection for deposits held in registered accounts. This means you can shop for the Best GICs rates knowing your money is safe.

To learn more about the coverage provided by each of the provinces and territories through these links: CDIC and Ratehub.


Summary

By now, you should be in a better position to make informed decisions about the safety of your deposits, and how CDIC coverage works.

So it is important for you to safeguard your funds by:

  • Staying up to date with any changes and know how it affects your deposits
  • Making sure your contact information is always kept up to date at all the financial institutions you bank with, in case CDIC needs to contact or send you payment.

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Simon is a CPA by day and a Personal Finance Blogger by night. With over a decade experience in financial services, he's passionate about personal finance, investing and helping people take control of their financial life.

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