This post was originally published on August 1, 2019 and was updated on June 14, 2023.
If you own a house or a car, there’s a good chance you own some sort of insurance. The same goes for bank accounts, except that the insurance doesn't cost you anything in monthly payments. This insurance is provided by the Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation. It's known as CDIC coverage and maximizing it can be a smart financial move to protect your money.
CDIC insurance coverage ensures that your savings and certain types of investments are protected in the event that the bank holding your savings goes out of business. While the chances of a Canadian bank going out of business is slim, CDIC coverage gives you peace of mind at no additional cost.
However, CDIC coverage does have some limitations. Certain investment accounts are not covered, and the coverage does not exceed $100,000 per account. To maximize your CDIC coverage and ensure that deposits over $100,000 are protected, there are a few strategies you can employ. Here are some simple options to consider.
What’s covered by CDIC insurance?
Deposits made into most types of bank accounts come with CDIC Insurance. Each account is covered up to $100,000. Accounts that come with coverage include:
- Chequing Accounts
- High-Interest Savings Accounts (HISAs) and Savings Accounts
- Tax-Free Savings Accounts (TFSAs)
- Registered-Retirement Savings Plans (RRSPs)
- Guaranteed Investment Certificates (GICs) with terms five years or less
- Money orders and bank drafts issued by CDIC members
- Cheques certified by members of the CDIC
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What’s not covered by CDIC Insurance?
In general, CDIC does not cover savings and investments with higher volatility. These include:
- Mutual funds
- Exchange-traded funds (ETFs)
- Treasury bills
- Principal protected notes
- Debentures issued by banks, governments, or corporations
- Deposits with receipts
- Deposits with institutions that are not members of the CDIC, such as credit unions
Does CDIC insurance cover credit unions?
CDIC insurance does not cover credit unions. However, credit unions are still insured through provincial insurance, which varies from one province to another. While each policy is different, they operate similarly to CDIC.
Ways to Maximize your CDIC Coverage
It is important for every Canadian citizen to make the most of their CDIC coverage, especially since coverage begins as soon as an account is opened. While the likelihood of a Canadian bank going out of business is low, it’s important to ensure that you and your finances are protected.
1. Use various saving and investing accounts
CDIC insurance covers up $100,000 in an account. By utilizing multiple accounts, you can maximize your CDIC coverage.
For example, if you have $250,000, you can keep $100,000 in a high-interest savings account (HISA). Additionally, you can contribute $81,500 to a tax-free savings account (TFSA), which is the current yearly limit. Make sure you don’t exceed your TFSA contribution limit.
With $68,500 remaining ($250,000 - ($100,000 + $81,500) = $68,000) remaining, you have various options if you prefer to keep all your savings with one institution. You can distribute the remaining amount among other accounts.
One of those accounts is the Registered Retirement Savings Plan (RRSP), which reduces your annual taxable income. However, contributions must not exceed your RRSP contribution limit to avoid penalties. It is worth noting that withdrawals from RRSPs are taxed.
You should also keep in mind that your TFSA or RRSP contribution limit remains the same regardless of the number of accounts you hold.
Guaranteed Investment Certificates (GICs) are another suitable account option. GICs allow banks to borrow money from customers for a fixed period, and interest is provided at the end of the term. The caveat is that customers can’t access their funds before the investment reaches maturity. GIC insurance only covers terms that are five years in length or less.
CDIC offers separate coverage for deposits held in seven eligible categories, which include:
- Deposits held in one name
- Deposits held in more than one name (i.e., joint deposits)
- Deposits held in an RRSP
- Deposits held in a TFSA
- Deposits held in an RRIF
- Deposits held in trust
- Deposits held for making tax payments on mortgaged properties
2. Save and invest with different institutions
Understandably, individual savings and investment accounts aren’t ideal for everyone, which is why using different institutions to harness your savings and investments is another acceptable way to maximize your CDIC coverage.
Let's consider the same scenario of $250,000. By splitting the amount between two financial institutions, you can deposit $100,000 in one institution and another $100,000 in a high-interest saving account issued by another institution. The remaining $50,000 can be placed in a high-interest savings account at a different financial institution. Of course, high-interest savings accounts are not the only option available.
Most Canadian banks are covered by CDIC insurance, so there are plenty of account options to choose from.
Be sure to shop around for an excellent interest rate on the account you invest with. Accounts with a low or no interest rate, such as regular savings accounts or chequing accounts, won’t keep pace with Canada’s inflation rate. This means that the value of your investments and savings will decrease in value as inflation rises.