Do you know what I like about starting a new year? It gives me an opportunity to organize areas of my life that I’ve been ignoring for a while, and review some things to see if I need to make any changes.
Case in point, the first few days of 2021 I cleaned my entire house (I even spent a few hours scraping my oven racks in the bathtub!), unfollowed a ton of social media accounts that didn’t inspire me or make me feel good about myself, and of course, I took a good look at my finances.
As you may know, since I love to talk about it, I’ve been tracking my spending and net worth every month for the past 4 years. I’ve got a really good system going for tracking my numbers, keeping myself accountable, and most importantly keeping things simple.
But, with that said, I realized it had actually been quite a long time since I looked at my cash flow framework (how all my accounts work together to move money in and out). And I realized that it was definitely time to make some updates and make sure that I was properly protected with CDIC deposit insurance.
Deposit protection may not even cross your mind when you’re looking at your finances or reorganizing your bank and investment accounts, but it should! CDIC deposit insurance is how we as Canadians can feel confident that our money is safe at the bank.
What Is CDIC Deposit Insurance?
The Canada Deposit Insurance Corporation (CDIC) protects eligible deposits at over 80 financial institutions throughout Canada. Coverage is up to a maximum of $100,000 in each of seven separately protected categories, so it’s important to ensure you don’t go over that maximum. And in case you’re wondering, that coverage includes protecting both your principal and any interest that accrues in your account.
What Does CDIC Deposit Insurance Cover?
So this is the really important part, and what you need to check when reviewing your own cash flow framework. CDIC deposit insurance doesn’t cover everything, and they made some big updates in the spring of 2020 you should be aware of as well.
So, what is covered?
- Savings accounts
- Chequing accounts
- Term deposits (there are no limits on terms anymore, previously it didn’t cover term deposits with terms greater than 5 years)
- Cheques certified by CDIC members
- Foreign currency deposits like U.S. dollars (this is new, foreign currency never used to be covered)
What Does CDIC Deposit Insurance Not Cover?
That all seems fairly straight-forward, so let’s move onto what isn’t covered.
- Mutual funds (including money market funds), stocks and bonds
- Digital and cryptocurrencies
- Treasury bills and bankers’ acceptances
- Principal protected notes that are traded
- Debentures issued by banks, governments or corporations
- Deposits with receipts payable to bearer (rather than to a named person)
- Deposits held at financial institutions that are not CDIC members
- Travelers’ cheques (this used to be covered, however, coverage ceased as of April 2020)
Example of How to Determine What Is & Isn’t Covered
Now that you know what is and isn’t covered, I suggest you take a good look at all of your accounts and see what is and isn’t covered.
For example, let’s pretend this is your cash flow framework.
As you can see, you’ve got a chequing account and six savings accounts with nothing but cash in them. You’ve also got two RRSP accounts, one that holds stocks, one that holds GICs. And lastly, you’ve got a TFSA that has a portfolio of ETFs in it.
Can you quickly figure out what accounts are covered by CDIC deposit insurance?
Your chequing and savings accounts would be covered since they simply have cash in them (I’ll talk about that maximum $100,000 coverage in a moment), and your RRSP with GICs in it would also be covered. Your RRSP with stocks and your TFSA with ETFs would not be covered.
CDIC Deposit Insurance Maximums & Categories
Aside from looking at how you’re covered based on what financial assets you hold in your accounts, it’s also important to make sure you’re not going over the maximum allowable amounts for coverage.
As I briefly mentioned, the maximum coverage amount is $100,000 per depositor, per category, and per institution.
Let’s break that down a bit and start with the categories.
- Deposits held in one name
- Deposits held in more than one name
- Deposits held in an RRSP
- Deposits held in an RRIF
- Deposits held in a TFSA
- Deposits held in a trust
- Deposits held for paying taxes on mortgaged properties
What this means is that at one single financial institution, you can hold:
- $100,000 in your name (i.e. personal chequing or savings)
- $100,000 in a joint account
- $100,000 in an RRSP
- $100,000 in an RRIF
- $100,000 in a TFSA
- $100,000 in a trust
- $100,000 in an account held for paying taxes on mortgage properties
And the total $700,000 of deposits would be covered. So technically, you can be covered for well above $100,000, it just depends on how your money is categorized.
Example of How to Determine How Much Is Covered
Going back to our example, we already know our RRSP with stocks and TFSA with ETFs aren’t covered. But what about our other accounts with eligible deposits? How much is actually going to be covered? Let’s also assume that the different account colours indicate different CDIC member institutions.
- Chequing account – Since this is at a separate institution than everything else and deposits are not more than $100,000, the full $3,000 in deposits is covered.
- RRSP that holds GICs – Since this is at a separate institution than everything else and deposits are not more than $100,000, the full $10,000 in deposits is covered.
- Savings accounts – Although these accounts are at a separate institution than everything else, all the deposits combined amount to $113,000. That’s $13,000 over the maximum since all of these accounts fall into the same category of “deposits held in one name”. In other words, only $100,000 in deposits would be covered, but the additional $13,000 would not be covered. The solution would be to open new savings accounts at another CDIC member institution so that all deposits are covered.
Are You Properly Covered?
To end things off, I challenge you to do a deep dive of all of your accounts like I shared in my example and see if you are properly covered or not. And if not, make a change so you are.
One easy way to do this is to use this CDIC coverage calculator.
On top of that, it’s also important to ensure wherever you’re banking, that it is a member institution of CDIC. If it’s not, then your deposits won’t be covered by CDIC deposit insurance. You can easily do this by checking to see if the CDIC logo is present at the bottom of your bank’s website like this:
You can also check out this list of CDIC member institutions as well.
Spread the Word!
You may be surprised to hear this, but only 61% of Canadians are aware of CDIC deposit insurance! There’s a lot of misinformation out there and more people need to know how CDIC protects their deposits so they can have more confidence in our financial system.
So spread the word and share this post! And of course, if you have any questions, please let me know in the comments below.