How to protect your funds if your bank fails
THE STACK #48
You worked hard all winter to take care of your skin so that you have that summer glow. Now that the sun is out, you won't step outside for a second without slathering on sunscreen to protect your skin and preserve all your hard work. Why not have the same level of protection for your hard-earned money?
Keeping your money in a financial institution that doesn't have insurance to protect your funds is like laying on the beach all day without sunscreen. It could leave you burnt and bruised if the institution faces tough times.
Today's newsletter will discuss how to protect your funds with a financial institution, so all you have to worry about all summer is getting an even tan.
THE STACK
Choose an insured financial institution
Choose a financial institution that is a member of the Canada Deposit Insurance Corporation (CDIC). CDIC insures eligible deposits up to $100,000 (principal and interest combined) per depositor per insured category.
CDIC insurance is important because it protects your eligible deposits in case of a bank failure or insolvency. This means that if your financial institution fails, the CDIC will reimburse you for your insured eligible deposits up to $100,000, providing you with peace of mind and financial security. It’s like SPF 100 but for your money.
CDIC covers nine insured categories, and each category is covered up to a maximum of $100,000 per member institution.
The insured categories covered by CDIC include:
Deposits held in one name
Joint Deposits
Deposits held in a Registered Retirement Savings Account (RRSP)
Deposits held in a Registered Retirement Income Fund (RRIF)
Deposits held in a Tax-Free Savings Accounts (TFSA)
Deposits held in a Registered Disability Savings Plan (RDSP)
Deposits held in a Registered Education Savings Plan (RESP)
Deposits held in a First Home Savings Account (FHSA)
Deposits held in a trust
Products that are insured by CDIC include:
Deposits in Canadian or foreign currency
Guaranteed Investment Certificates (GICs)
Term deposits
Prepaid reloadable cards (if the funds are held with a CDIC member)
CDIC does not provide coverage for Mutual Funds, Stocks, Bonds, Exchange Traded Funds (ETFs) and Cryptocurrencies (I will share how to protect your investments in an upcoming newsletter).
Diversify your accounts
Because CDIC insures eligible deposits up to $100,000 per insured category per institution, consider spreading your funds across multiple accounts or financial institutions to stay within the insured limit for each account instead of keeping all your funds in a single account.
For example, if you have the following funds with ABC Bank that is a member of CDIC:
$50,000 in your High-interest savings account
$180,000 in a GIC in your Registered Retirement Savings Plan (RRSP)
$130,000 in a High-Interest Tax-Free Savings Account
$20,000 cash in your Chequing account
Although you have $380,000 in eligible deposits, only a maximum of $270,000 will be insured by CDIC at ABC Bank. The remaining $110,000 will be uninsured, so you need to move the excess $110,000 to another CDIC member institution to ensure it stays protected.
Monitor account activity
Regularly monitor your accounts for any unusual or unauthorized activity. You can set up alerts for any withdrawals above a certain amount to help you quickly detect fraudulent charges. If you notice any discrepancies, report them to your bank right away to prevent potential fraud.
Monitor financial health
Keep an eye on the financial health and stability of the institution where you hold your funds. Stay informed about any significant changes or developments that may impact the safety of your deposits. You can do this by reading their quarterly financial statements or press releases about the financial institution.
THE TOOL
Find out if your financial institution has CDIC coverage
The CDIC website contains a comprehensive list of its member institutions. If you are uncertain whether CDIC covers your institution, you can search for its name on the member listing.
You can also calculate how much coverage you have by using this deposit insurance calculator.
If you can't find your financial institution on the list, it's possible that some financial institutions, such as online banks, may not be CDIC members but could have deposit coverage through other CDIC member institutions where they hold their deposits. It's important to note that if your funds are held at both the non-CDIC member institution and the CDIC member where the funds are held, you will only be covered for up to $100,000 per category held at the member institution.
Provincial Credit Unions are insured by the province’s deposit insurer, not by CDIC.
THE ACCOUNTABILITY
Verify that all the financial institutions where you have accounts are members of CDIC.
If you have over $100,000 in any financial institution, make sure that the full amount is protected. If your deposits exceed your coverage limit, consider transferring the excess to another financial institution that is a member of CDIC.
THE COURAGE
THE KNOWLEDGE
Term Deposit
A term deposit is a fixed-term investment with a financial institution where the money is invested for an agreed-upon period at a fixed interest rate. The funds cannot be withdrawn before the end of the term without incurring a penalty. It's a low-risk investment option and can be a way to save money while earning interest.
Depositor
For CDIC deposit insurance, depositors may include individuals (including sole proprietorships), corporations, partnerships, governments, churches, charities, non-profit organizations, estates, and trustees with funds deposited in a member institution.
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