How does the deposit insurance in Canada work?

The Financial system in Canada has been regarded as an island of calmness and stability. Although the providers of banking and financial services in Canada are among the strongest and most stable financial institutions in the world, they are not ineffable. To protect the deposits of all citizens against unexpected bankruptcy or some other financial trouble, the Canadian Parliament has established the Canada Deposit Insurance Corporation (CDIC).

Before explaining how CDIC works, it should be mentioned that CDIC is not a bank, neither is it an insurance company. Rather, Canada Deposit Insurance Corporation is a state institution that contributes to the strength and stability of Canada’s financial and banking sector by guaranteeing that the funds of Canadian citizens, deposited with a CDIC member, are protected in case that some financial institution runs into unexpected financial troubles or goes bankrupt.

It should also be taken into consideration that although the list of CDIC members is quite long, it does not include all financial services providers in Canada. Moreover, CDIC insures only chequing and savings accounts held in Canadian dollars in a CDIC member bank. Thus, the Corporation insures eligible deposits at each CDIC member institution up to a maximum of $100,000. To be qualify for deposit insurance, deposits should be payable in Canadian currency and on the territory of Canada. In general, deposits are considered payable in Canada if they are held at branches or offices of a CDIC participating institution in Canada. In addition, CDIC insures deposits in Guaranteed Investment Certificates and other deposits that have an original date of maturity of up to five years (held at a CDIC member), but it does not insure term deposits with an original date of maturity of more than five years. The list of deposits and financial instruments insured by CDIC also includes money orders, bank drafts, and certified and travellers’ cheques, issued by CDIC participating institutions, as well as bank accounts holding realty taxes on mortgaged properties. It is noteworthy that Canada Deposit Insurance Corporation does not insure treasury bills, mutual funds, stocks, bonds and term deposits with a maturity date of more than five years. In addition, a CDIC deposit insurance policy covers funds and savings held in eligible accounts and financial products included in Registered Retirement Savings Plans (RRSP), with the exception of mutual funds or stocks.

When the Canada Deposit Insurance Corporation calculates deposit insurance, it considers joint deposits separately from savings held in your name alone. A CDIC insurance covers up to $100,000 in savings in accounts held in the holder’s name and up to $100,000 in savings held in a joint account.

Unlike the clients of other insurance companies, the customers of CDIC do not pay monthly insurance premiums. Instead, the CDIC participating institutions pay premiums to the corporation in order to cover the costs of insuring the clients’ deposits. In case a CDIC member undergoes financial failure or declares bankruptcy, the corporation pays to depositors the sum of all insured savings (but not in the excess of $100,000).

Most of Canada’s chartered banks and financial groups are CDIC members, as well as some loan and trust companies that take deposits, and those financial associations that are governed by the Cooperative Credit Associations Act and take deposits.

It should be mentioned that credit unions and caisses populaires (as Canadian branches of foreign banks) are not members of CDIC. The deposits of Canadian citizens with credit unions and other financial institutions that are not members of the Canada Deposit Insurance Corporation are usually insured by provincial in deposit insurance companies.