What is CDIC Insurance?

  • 4 min read

Established by Canadian Parliament in 1967, the Canada Deposit Insurance Corporation (CDIC) is a federal crown organization that offers deposit insurance for savings institutions and commercial banks across the country. CDIC aims to contribute and promote the stability of Canada’s financial system by offering deposit insurance when it comes to losses around eligible deposits in the event of bank failure at a member institution. The corporation also aims to act for the benefit of depositors at these financial institutions in order to minimalize losses. 

While coverage is automatic, and there are many types of savings against a financial institution and depositor that fall under CDIC insurance coverage, a bank must be a member of CDIC. It’s also important to note that not all savings are insurable. The CDIC is considered the Canadian resolution authority when it comes to federally regulated credit unions, banks, associates governed by the Cooperative Credit Associations Act (which takes deposits), as well as trust and loan companies.

How Much Does CDIC Insurance Cover?

When a bank is not able to meet its monetary obligations to creditors or depositors because it has become too illiquid or insolvent, then a bank failure occurs. A bank failure rolls down the pipe for a financial institution when it economically fails, and the value of the bank’s assets is less then its liabilities.

This is where CDIC insurance coverage comes in. The CDIC insures deposits held at member Canadian banks and other institutions of up to $100,000 (CAD) if a bank failure arises. 

In fact, after 22 years of sitting at $60,000 (CAD), the CDIC raised the insured limit to $100,000 in 2005. This is all thanks to Oakville, Ontario’s President of Fiscal Agents, David Newman. He and the organization started a petition in 2004 asking GIC investors to help them lobby for this increase change, and they were granted their request when the Federal Budget was announced the following year.

What is Eligible Under CDIC Insurance?

All deposits must be payable in Canada and must be in Canadian dollars to be eligible for CDIC insurance coverage. Term deposits need to be repaid within five years from the date that the money was invested, as well.

In addition to term deposits, CDIC covers chequing and savings accounts, money orders, traveler’s cheques, and drafts. What is not covered is investments in mutual funds, stocks, or bonds, as well as treasury bills, and foreign currency. 

How Can You Maximize CDIC Coverage?

There are multiple ways to maximize your CDIC coverage, and this is especially important for those with investments that equal out to greater than $100,000. 

One route is investing large sums in multiple accounts. If you have $300,000 to invest and remain committed to one specific institution, a good way to guarantee you are still covered for that entire sum is splitting it up into three accounts. CDIC has a deposit insurance calculator on its website, so clients can review what their coverage would look like within multiple accounts.

If you are not overly committed to one specific financial institution, then splitting up your savings into multiple entities is another idea, as well. Holding multiple accounts within multiple entities might be a good idea too, and once again broadens your CDIC coverage and doesn’t restrict insurance eligibility. 

Then there’s the concept of GIC laddering. A systematic and disciplined concept when it comes to GIC investing, it takes the “guesswork” out of how much you should invest in each GIC account to ensure CDIC insurance coverage. One route is doing a five-year GIC ladder. Let’s say you have $100,000; you divide your lump sum investment into five equal amounts of $20,000. The first is invested for one year, the second is for two years (and so on). After the setup, GICs that would mature are instantly invested for five years, and when the account equals out to more than $100,000, each GIC is placed with a different financial institution to ensure coverage is not placed at risk.

Lastly, a great tip to maximize your CDIC coverage is simply going with a broker to help manage your investments. Life gets busy, and while the above suggestions seem simple enough, things can get complicated before you know it, especially if you are investing higher amounts of money. A broker can not only help with CDIC insurance and ensure you maximize coverage, but they can offer a plethora of added advice, as well as assist with any other investment issues.

View more information about CDIC Insurance.

Christopher - BSc, MBA

With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.