Canada Deposit Insurance Corporation
Canada Deposit Insurance Corporation (CDIC) is a federal Crown corporation. It provides insurance to depositors against the loss, in whole or in part, of deposits made at member institutions, namely banks, trust companies, loan companies and retail associations to which the Cooperative Credit Associations Act applies, in the event of their failure. It’s important to note that credit unions and caisses populaires are members of provincial, not federal, deposit insurance organizations in their respective provinces, and are therefore not part of CDIC’s mandate.
How does deposit insurance work?
When investors place money in eligible deposits they are automatically insured to a maximum basic coverage limit of $100,000, including principal and interest. This amount was raised from $60,000 in the 2005 federal budget. In addition, separate coverage of up to $100,000, including principal and interest, is available for: eligible deposits held in joint accounts, in trust, in Registered Retirement Savings Plans (RRSPs), in Registered Retirement Income Funds (RRIFs) and in realty tax accounts. Eligible deposits must be:
- in Canadian currency, payable in Canada;
- repayable no later than five years from the date of deposit; and
- placed at a financial institution that is a CDIC member.
Deposits that are not insurable include foreign currency deposits (such as accounts in U.S. dollars) and term deposits that mature more than five years after the date of deposit. Mutual funds, stocks, notes, bonds and certain debentures issued by corporations (including member institutions), Treasury bills and bonds issued by governments and investments in mortgages are not deposits.
Basic coverage applies to a depositor’s eligible savings and chequing accounts. It also covers Guaranteed Investment Certificates (GICs) and other term deposits that mature in five (5) years or less, as well as money orders, drafts and certified cheques.
Your client has the following deposits at a CDIC member institution:
- Canadian dollar savings account worth $15,000, including interest earned
- Five-year GICs worth $20,000, including interest earned
- U.S. dollar savings account worth $10,000
- Mutual fund investments worth $15,000.
Only the Canadian dollar savings account and five year GICs are eligible for deposit insurance, so your client will receive $35,000 if the institution fails.
Deposits that your clients hold jointly with someone else are eligible for separate coverage as long as the member institution’s records state that the deposits are jointly owned and identify the name and address of each joint owner. Joint owners are collectively (not separately) eligible for a maximum of $100,000 in coverage.
Your client has the following joint deposits at a CDIC member institution:
- Eligible deposits worth $75,000 held with a spouse
- Eligible deposits worth $75,000 held with a spouse and a child
- Eligible deposits worth $125,000 held with two business partners.
The $75,000 held by your client with a spouse is eligible for separate deposit insurance. So is the $75,000 held with the spouse and a child. In addition, $100,000 of the $125,000 held with the two business partners is protected. A total of $250,000 of your client’s joint deposits will be reimbursed if the institution fails.
Deposits held in trust
Trust deposits with the same trustee(s) and beneficiary(ies) may be eligible for separate coverage of up to $100,000 provided that the member institution’s records state that the deposits are held in trust, identify the name and address of the trustee(s) and beneficiary(ies), and, if there is more than one beneficiary, disclose the amount or percentage of each beneficiary’s interest in the trust. (However, CDIC can decline to cover a trust deposit if the trust was set up primarily to obtain or increase deposit insurance coverage.)
Your client has the following trust deposits at a CDIC member institution:
- Eligible deposits worth $150,000 held in trust for three children, each of whom has a one-third interest in the trust.
The full $150,000 is insurable in favour of the trustee of the trust because each beneficiary’s share ($50,000) is less than the $100,000 maximum coverage available in respect of each beneficiary.
Deposits held in RRSP
Eligible deposits held in RRSPs, such as term deposits, are eligible for separate coverage of up to $100,000. Multiple RRSP accounts held by one annuitant are collectively (not separately) eligible for a maximum of $100,000 in coverage. In the case of a spousal RRSP, eligibility is calculated based on the total RRSP deposits of the annuitant, namely the spouse, and not of the contributor.
Your client and your client’s spouse have the following RRSP deposits at a CDIC member institution:
- Five-year GICs that your client contributed to his/her RRSP worth $95,000 at maturity
- Mutual funds that your client contributed to his/her RRSP worth $225,000
- Three-year GICs worth $80,000 at maturity that your client’s spouse contributed to his/her own RRSP
- Three-year GICs worth $35,000 at maturity that your client contributed to his/her spouse’s RRSP.
Your client’s mutual fund investments are not protected by CDIC, as mutual funds are not deposits; however, the GIC deposits worth $95,000 (including interest) in your client’s RRSP are insurable. Your client’s spouse’s RRSP deposits would be added together (as the spouse is the annuitant of both the deposits contributed by your client to the spousal RRSP and those contributed by the spouse to his/her own RRSP) to determine eligibility ($80,000 + $35,000 = $115,000); the maximum total of $100,000 will be reimbursed if the institution fails, leaving $15,000 unprotected by deposit insurance.
Deposits held in RRIFs
Eligible deposits held within RRIFs, such as term deposits, are eligible for separate coverage of up to $100,000. This insurance is in addition to coverage for a depositor’s eligible RRSP savings at the same member institution.
Your client has the following RRIF deposits at a CDIC member institution:
- Savings account worth $8,000
- Sixty-day term deposits worth $20,000 at maturity
- One-year term deposits worth $50,000 at maturity
- Mutual funds worth $22,000.
Your client’s mutual fund investments are not protected by CDIC, as mutual funds are not deposits. The remaining deposits, valued at $78,000 on maturity, are insurable and will be reimbursed if the institution fails.
What happens when two institutions merge?
Your clients’ deposit insurance coverage may be affected when two member institutions merge. The Canada Deposit Insurance Corporation Act defines an amalgamation as either:
- the merger of two or more CDIC member institutions into one, which continues business as a single member institution; or
- the acquisition of deposits from a CDIC member institution by another member institution.
Common ownership of two member institutions, as long as each retains its separate identity and CDIC membership and no deposits are assumed by the other, is not considered an amalgamation. Neither is a merger or transfer of deposits between a member institution and a non-member.
Following an amalgamation, eligible demand deposits (e.g., savings and chequing accounts) made before the merger continue to be insured separately until clients withdraw money from their accounts. GICs and other term deposits that mature in five (5) years or less, made before the merger continue to be insured separately until they mature or are redeemed. Eligible deposits made after the merger are only insured if the combined total of all deposits, including the remaining balance of the deposits that existed at the time of the amalgamation, does not exceed $100,000.
Your client has the following eligible deposits at the time of amalgamation:
- At member institution A, a total of $50,000
- At member institution B, a total of $75,000.
After the amalgamation, the full $125,000 will continue to be insured – but that amount will decrease as your client withdraws money or term deposits mature until the insured deposits at the merged institution reach the $100,000 maximum. New deposits will not be insured until the total amount of insured deposits that existed at the time of the amalgamation drops below $100,000.
Your client has the following eligible deposits at the time of amalgamation:
- At member institution A, a total of $25,000
- At member institution B, a total of $45,000.
If your client deposits an additional $40,000 in the amalgamated institution, he or she will only be insured up to the $100,000 maximum. A portion of the new deposit – $10,000 – will not be insured.
What happens when an institution fails?
As soon as possible after the failure of a member institution, CDIC sets up a dedicated toll-free number that depositors can call for information and to request an advance payment out of their insured balance if there is some urgent need. CDIC also sends out letters to depositors explaining how they will receive their reimbursement.
Your clients do not have to file a claim to receive this money. Depositors usually receive their payment within two months, either by cheque in the mail or by direct deposit into a new account in their name set up by CDIC at another member institution.
In the case of RRSPs and RRIFs, CDIC makes sure it has approval from the Canada Revenue Agency to place the insured funds in new registered plans with a new member institution without triggering the tax consequences of collapsing a registered plan. Payments are deposited into a savings account within an RRSP or RRIF so that you and your clients can decide how to reinvest the money.