CDIC goes further than you think

Back in 2005, conservative investors who appreciated the good old GIC had lots to celebrate because after 22 years, Canada Deposit Insurance Corporation (CDIC) raised the insured limit from $60,000 to $100,000.

CDIC insures most, but not all savings. CDIC covers:

  • savings accounts and chequing accounts
  • GICs or other term deposits with an original term to maturity of 5 years or less
  • money orders, certified cheques, travellers’ cheques and bank drafts issued by CDIC members
  • accounts that hold realty taxes on mortgaged properties

CDIC does not cover:

  • mutual funds and stocks
  • GICs and other term deposits with a date to maturity of more than 5 years
  • bonds
  • Treasury bills
  • Money market funds
  • US dollar or other foreign currency accounts

In order for the funds to be covered by CDIC, the financial institution must be a member of CDIC. To see if the institution you are dealing with is a CDIC member, visit the CDIC website.

So what does the $100,000 cover?

One of my readers, Bill and Andrea, posed a scenario where they received and inheritance of $750,000. They wanted to keep this money safe and secure and out of the markets. If they wanted to ensure that 100% of the money would be guaranteed by CDIC, did they have to spread the money out among 7 or 8 different financial institutions?

The thing to keep in mind is CDIC coverage is not only on a per institution basis but also on a per insurable category basis. You see, the problem with spreading the money out among a number of institutions is there can be more tracking, more paperwork and less bargaining power for rates.

One of the options they have is to open up a number of different eligible accounts even within the same institution. Here’s an example:

Invest $100,000 into a savings account in Bills name

Invest $100,000 into a savings account in Andrea’s name

Invest $100,000 into a savings account in a joint name account

Invest $100,000 into GICs in Bill’s name

Invest $100,000 into GICs in Andrea’s name

Invest $100,000 into GICs in joint name

Invest $10,000 into a TFSA in Bill’s name

Invest $10,000 into a TFSA in Andrea’s name

In this case, Bill and Andrea would effectively be covered for $320,000 invested because theSavingsand GICs are considered the same insurable category as defined by CDIC.

Other eligible accounts include RRSPs, RRIFs, and trust accounts.

Theoretically, you could have over up to $500,000 dollars covered under one single institution.

Multiple entities

Some institutions also have multiple entities which also creates greater coverage. For example, Royal Bank (RBC) also has Royal Royal Bank Mortgage Corporation, Royal Trust Company and Royal Trust Corporation of Canada

Theoretically, with four institutions you could invest $1.3 million in each entity under 13 different accounts and be covered under CDIC up to $5.2 million dollars.

By utilizing different accounts and different related entities, you can really increase the CDIC coverage within the same institution. If you have a significant amount of money, be sure to shop around your options. There may be benefits keeping it all within one financial institution but there may also be advantages spreading the money around to different institutions.

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