How Does CDIC Deposit Insurance Protect Your Money?

May 11, 2022

Advertising
Advertising

Have you ever thought about the fate of your cash in the bank if the institution you hold it with goes under? It’s a legitimate question and a legitimate concern. We all remember stories of our parents putting money into the sock drawers or under the mattress due to fear of putting their trust in banks.

Today you can have your sock drawer for socks due to deposit insurance, which in Canada is provided via CDIC. Canada Deposit Insurance Corporation is often referred to in the form of CDIC.

What is CDIC?

CDIC was founded in the year 1967. It’s not a banking institution, and CDIC isn’t a privately-owned insurance firm. It’s a not-for-profit Crown corporation created to safeguard Canadians. It has more than CDIC member institutions contribute to the CDIC to protect Canadians’ deposit accounts in the event of a collapsed bank.

What does CDIC mean?

The abbreviation CDIC refers to Canada Deposit Insurance Corporation. Suppose you find CDIC on a website for financial institutions or in your financial or bank documents. In that case, it indicates that the institution is a CDIC member. But, you’re much more likely to find the acronym written in CDIC.

Advertising

What does CDIC cover?

As most people have multiple accounts, CDIC will cover eligible deposits differently. Seven categories are covered in CDIC coverage:

  • Residues that are held under one name
  • Residues that are stored in multiple names (joint accounts)
  • Promises made in the registered retirement Savings Plan (RRSP)
  • Deposits within a registered retirement income fund (RRIF)
  • Residues that are held in the TSA that is tax-free (TFSA)
  • Trusted deposits
  • Deposits are held to pay taxes on mortgaged homes

CDIC will guarantee up to $100,000 per account, including principal and interest. CDIC also will cover foreign currencies, such as USD.

Learn more about these types of coverage by visiting the official CDIC website.

What is CDIC not provided?

Advertising

It’s important to know that CDIC cannot provide all the coverage. CDIC will not pay for losses resulting from theft or fraud. CDIC is also unable to guarantee mutual stocks or funds. Remember, CDIC will only cover the amount of $100,000 for each qualified account.

What exactly is CDIC insurance function?

CDIC insurance isn’t an expense you must purchase; it’s completely free. If you’re an institution that is a member of CDIC and a bank account that CDIC can cover, you’ll be able to relax knowing that your money (up to $100,000) is secured. But, it is essential to be aware of all the small print to see the coverage process.

Suppose you have chequing and savings accounts with the same bank, with a combined account balance of $150,000. If that bank fails, you’re only insured for $100,000 since both versions fall under CDIC’s “deposits held under only one account” standard.

Suppose you have savings and a TFSA in the same bank that is covered up to $100,000 for each account because they are in distinct categories. Suppose you also have a chequing bank account at one institution and one savings account, and both fail. In that case, you can claim both bills as they are both with different financial institutions.

What will happen if a bank or financial institution is insolvent?

In the event of a bank failing, CDIC serves as a resolution authority for its members. The goals of resolution for CDIC are as the following:

Advertising
  1. Protect eligible deposits
  2. Keep flowing vital financial services
  3. Secure Canada’s economy Canadian economy
  4. Reduce the risk for taxpayers

The tools used in these resolutions might include closing an establishment and reimbursing insured deposits. But, they could also have the sale of assets or shares or assets, amalgamation with a financial institution, restructuring, recapitalization, and private options.

For a more thorough breakdown of what happens in the event of a failure that is a result of a loss, the CDIC website explains the process in detail. While the thought of a bank’s negligence can be extremely stress-inducing, you can find some comfort in the following information. Since the CDIC’s founding at the end of 1967, there have been 43 failed banks that have affected two million customers. Nobody under CDIC protection lost a single dollar.

How many banks can be covered under CDIC?

As mentioned earlier, the CDIC has more than eighty Canadian financial institutions which are members of the CDIC. They include the biggest banks in Canada like Bank of Montreal, Bank of Montreal, RBC, and CIBC, online banks such as EQ Bank and Tangerine Bank, and several trust companies and loan companies and Federal credit unions. You can view the entire list of banks here. Keep watch to look for that CDIC badge. Members will be displaying the badge on their websites and on their app and in their physical branch locations.

Advertising
Advertising
Advertising