When buying any guaranteed investment certificate (GIC), you may be wondering what guarantee you have that your money will actually be returned to you at the end of the term.
There are essentially two layers of protection for your money:
- The GIC is a liability of the issuing financial institution; this means they are legally obligated to pay you back both your initial investment plus the interest earned.
- In the event the financial institution goes under, there is often a second layer of protection available to you. Deposit insurance is provided through Canada Deposit Insurance Corporation (CDIC) or a provincial deposit insurer.
What is CDIC?
CDIC is a federal Crown Corporation that insures eligible deposits made with its member institutions; it is fully backed by the Government of Canada. Insurance offered by CDIC is automatically in place for eligible deposits at CDIC member firms at no additional charge to consumers. (You don’t need to purchase insurance – it’s your bank’s insurance policy.)
What is deposit insurance?
While the failure of a financial institution is unlikely in Canada, it is possible. Like other countries, Canada has a system of deposit insurance in place to protect savers from losing their money in the event a financial institution does fail. The government will guarantee deposits up to a certain threshold for each depositor; this not only helps compensate depositors, should a financial institution actually fail, but helps to maintain confidence in the banking system. Without deposit insurance, “runs” on financial institutions might be more common. People are far less likely to withdraw their money in a panic, if they know the government will protect their savings.
Are GICs covered?
Most GICs (principal plus interest) are eligible for coverage up to $100,000 by CDIC. Furthermore, consumers are covered for up to $100,000 at each institution for each of the following:
- savings held in one name
- joint deposits (savings held in more than one name)
- savings held in trust for another person
- savings held in Registered Retirement Savings Plans (RRSPs)
- savings held in Registered Retirement Income Funds (RRIFs)
- savings held in Tax-Free Savings Accounts (TFSAs)
- money held for paying realty taxes on mortgaged properties
Which GICs are NOT covered by CDIC?
CDIC does not cover:
- GICs with initial terms greater than 5 years
- GICs purchased through issuers that aren't CDIC members
- foreign currency GICs
Given that CDIC has separate coverage for different kinds of accounts, it may be prudent to spread GIC holdings among them. For instance, if you have $200,000 to invest, consider putting it into multiple GICs, in increments of less than $100,000 (to make sure accrued interest is covered) in a combination of regular GICs, TFSAs and RRSPs. This ensures that all $200,000 is eligible for insurance by CDIC. Remember that chequing and savings account balances (among other sundry deposits) are also insurable and may be included in calculating your overall coverage. It’s also a good idea to spread money among different member institutions to ensure maximum CDIC coverage.
For more information on CDIC members and deposit insurance coverage, visit the CDIC website .
Provincial deposit insurers
Credit unions and caisses populaires are not covered by CDIC. However, in many cases, deposits with these institutions are protected by provincial corporations or non-government insurers. The limits and criteria for eligibility vary from one to the other, so be sure to check the details of the coverage provided through your GIC issuer.
Here’s a list of credit union/caisses populaires insurers and an indication of the coverage they provide. Click through for details on membership, eligibility and exclusions.
|British Columbia||Credit Union Deposit Insurance Corporation||
|Alberta||Alberta Credit Union Deposit Guarantee Corporation||
|Saskatchewan||Saskatchewan Credit Union Deposit Guarantee Corporation||
Credit Union Deposit Guarantee Corporation
NOTE: This is NOT a government corporation.
|Ontario||Deposit Insurance Corporation of Ontario||
|Quebec||Autorité des marchés financiers||
|New Brunswick||New Brunswick Credit Union Deposit Insurance Corporation||
|P.E.I||Prince Edward Island Credit Union Deposit Insurance Corporation||
|Newfoundland and Labrador||Credit Union Deposit Guarantee Corporation||