Billions of dollars in Canada are invested in safe guaranteed investments like GICs. One of the most attractive features of the GIC is the safety of the capital. The invested capital is safe because the financial institution guarantees it. But what happens if the financial institution is no longer around to guarantee your capital?

The basic premise of a GIC is that the investor is actually a lender. He or she lends money to a financial institution in hopes of getting their money back plus an agreed upon amount of interest.

One of the considerations every investor must make is, will the entity that he or she lends money to be able to pay back the capital plus interest? What is the solvency of that institution? Is that institution really secure?

Deposit insurance

Deposit insurance comes in many forms like CDIC, Compcorp and CUDPP. The most commonly recognized form of deposit insurance is Canada Deposit Insurance Corporation (CDIC), which insures banks and trust companies up to a $60,000 limit.

What investors might not be aware of is that this $60,000 limit was brought into place in 1983 – over 20 years ago. The limit prior to that time was $20,000. During the past 21 years inflation has decreased the buying power of a dollar by about 56% based on changes in the consumer price index. Inflation has also reduced the value of CDIC coverage by this same percentage. The $60,000 coverage limit of 1983 is now worth about $34,000 in today’s dollars.

According to David Newman, president of the Fiscal Agents, “The eroded value of CDIC insurance has forced some depositors to use multiple registrations, such as adding other family member’s names to some of their investments, in order to keep all of their deposits insured. This practice might insure a deposit but it also results in a sharing of ownership, which may not be in the best interest of the original owner. A larger more practical limit for CDIC insurance would reduce the need to use such alternatives.”

In fact, many provinces have realized the need for higher coverage limits for provincially insured deposits, such as those purchased from credit unions, and have much higher limits than CDIC. For example, the provincial deposit insurance limit is $100,000 in Ontario, $250,000 in Nova Scotia and unlimited in Alberta. If the provinces can provide a higher limit for their credit unions why can’t the federal government bring its coverage for banks and trust companies in line with current needs?

CDIC insurance is not what it once was

If you agree that CDIC should raise its coverage, you can make a difference. David Newman, Information Officer and Director of Oakville, Ont.-based Fiscal Agents, has launched a campaign for reform of the 30-year-old CDIC program. Newman is very passionate about this cause, “We at Fiscal Agents feel that CDIC coverage should be increased to $100,000, at a minimum. This probably won’t happen anytime soon without a lobbying effort on the part of the public. We are therefore recommending that all concerned investors should write directly to CDIC.”

If you are looking for more information, you can visit the Fiscal Agents website at www.fiscalagents.com. On their site, you can find pre-printed form letters that you can use to send to CDIC.