Insured vs. Non-insured GICs

If you’re looking at buying a GIC, there are a number of issues you’ll want to think about first: Whether to get a cashable or redeemable GIC, how long a term you’re comfortable with, and of course, the interest rate.

But there’s another thing you need to make sure of before you make a GIC purchase: Is the GIC covered by deposit insurance? And if it’s not, is that a risk you’re willing to take?

A quick recap of deposit insurance

The Canada Deposit Insurance Corporation (CDIC), covers eligible depositors for up to $100,000 (principal and interest combined) per insured category at CDIC member institutions. If the bank happens to go bust, the government-backed insurance kicks in and protects both your principal and any accrued interest you’re owed.

Read:A Primer on CDIC Insurance

GICs that are covered

Most GICs at Canadian financial institutions are eligible for CDIC insurance (and if you own a GIC through a credit union or caisse populaire, those should be covered by provincial deposit insurance plans). Here’s a list of the kind of GICs that qualify for CDIC insurance:

• GICs with an initial term of five years or less (a seven-year GIC with five years remaining until maturity isn’t covered);
• Five-year deposits, including GICs, that mature on non-business days. If the financial institution sets the next business day as the maturity day, the GIC will still be covered if the initial maturity was five years or less; and
• Index-linked GICs are covered so long as the principal is fully repayable upon maturity. In addition, the initial term must be five years or less.

What’s not insured

Crucially, some GICs are explicitly not covered by CDIC insurance. These include:

• GICs issued by a financial institution that isn’t a member of the CDIC.

The CDIC notes that member institutions issuing any deposit products, such as GICs, have to notify you if a particular deposit investment isn’t eligible for CDIC insurance.

How to protect yourself

Because CDIC insurance covers multiple categories of deposits, it’s possible to have more than $100,000 protected at one financial institution. You could, for example, have $75,000 in GIC in an RRSP, $75,000 in a GIC in a TFSA, $40,000 in a high-interest savings account, and $10,000 in a joint chequing account with a spouse. In this instance, you’ll have $200,000 in CDIC insurance coverage.

If you have a large amount of money, you can also deposit your money with a number different banks to increase your CDIC insurance coverage. Alternatively, some provincial corporations or non-government insurers provide better coverage than the CDIC. For example, there’s no limit to the size of deposit covered by the Credit Union Deposit Guarantee Corporation in Saskatchewan.

The bottom line

An insured GIC protects you in the event your financial institution fails and provides you with peace of mind. Before buying a GIC, check with your bank/credit union to see if its products are protected by deposit insurance.