What happens in Canada if a bank fails?

There’s a common misconception out there that Canadian banks and financial institutions aren’t susceptible to failures like we’ve seen in the United States and around the world.

That’s simply NOT true.

What Is CIDC

In 1967, Parliament created the Canada Deposit Insurance Corporation (CDIC) and mandated it to provide deposit insurance in the event of a bank failure, thereby ensuring that Canadians wouldn’t lose all their savings if their bank went under. Since that year, over 40 CDIC member institutions (members include banks, loan and trust companies, and federally regulated credit unions) have failed. Luckily, CDIC was there to protect the over 2 million affected depositors, and not a single dollar under CDIC protection was lost.

How it works

While no CDIC member has failed in over 20 years, it could happen again, and CDIC is here to reassure you that, should the unlikely occur, depositors won’t lose their hard-earned savings. However, not all funds are protected by CDIC. CDIC protects eligible deposits at over 80 member institutions, up to a maximum of $100,000 per depositor and per insured category. Eligible deposits include things like savings accounts, chequing accounts, and term deposits of 5 years or less.  These deposits must be payable in Canada and held in Canadian currency.

Insured categories are:

  • Deposits in one name
  • Joint deposits
  • Deposits in trust (including RESPs)
  • Deposits in TFSAs
  • Deposits in RRSPs
  • Deposits in RRIFs
  • Mortgage tax accounts

Here’s a visual breakdown of how this works:

How CIDC works

CDIC does not cover other investments such as mutual funds, stocks or bonds, or GICs with terms greater than 5 years. Foreign currency accounts and digital currency, like bitcoin, are also not protected by CDIC.

It’s important to understand how CDIC coverage works in order to fully understand the risk in your portfolio. For example, if you have an RESP for your children, you may have mutual funds, cash deposits and GICs within that RESP. While the cash deposits and GICs (provided they have terms of 5 years or less) are eligible for CDIC protection, the mutual funds are not. There’s an excellent estimator on CDIC’s website to help you calculate which of your savings or investments are protected, and which are not.

Let’s break down one family’s finances, and how much of their money is covered by CDIC. If you’re more of a visual person, watch this video about Chris & Kelly.

Chris has $22,000 in a chequing account, $100,000 in a 3-year GIC held within an RRSP, and $20,000 in mutual funds in the same RRSP. All but the mutual funds are protected, meaning $122,000 of Chris’s $142,000 is protected. Kelly has $100,000 in a 5-year GIC in an RRSP and $30,000 in cash in a TFSA. All of Kelly’s money is protected by CDIC. Together, Chris and Kelly have a joint account holding $100,000. Since joint accounts are protected separately from personal accounts, this full amount is protected. They also have $200,000 in trust for their 2 children. Trusts are protected up to $100,000 per beneficiary. Since both of their kids are beneficiaries, the full $200,000 is protected. Chris and Kelly have a total of $552,000 that is protected by CDIC.

Another way to maximize your protection is by placing your savings in eligible deposits at different financial institutions. Accounts at Bank ABC are covered separately from those at Bank XYZ.

So why does CDIC matter?

Research has shown that when Canadians know about CDIC protection, they are 50% more likely to feel confident in the safety of their savings. This contributes to the overall stability of the Canadian financial system, and can ease some stress and worry when there are uncertainties in the economy. Currently, only 49% of Canadian adults are aware of CDIC, and the data is broken down further by demographic, we see that less than 30% of millennials in Canada (ages 25-34) have heard of CDIC.

CDIC is committed to raising public awareness of its program and mandate to help strengthen trust and ensure Canadians are informed and confident in their financial decisions and the financial system overall. Tell us, before today, had you heard of CDIC?

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Kyle is a high school humanities teacher by day, and freelance personal finance author by night. He has been published in academic journals, and has also co-authored the book "More Money for Beer and Textbooks". In his free time Kyle likes to limp up and down a basketball court and pretend to be a tough guy in a boxing ring.

2 Comments

  1. Michael on December 22, 2017 at 8:02 am

    In our “circles” of personal finance, I find it highly unlikely that anybody will be able to make any significant use of CDIC coverage. In the current framework promoted by many Canadian/American investors in the PF(personal finance) and FI/RE (financial independence / retire early) communities, low-cost index investing (via ETFs) is not protected by the CDIC.
    For those of us that are more hands-on with our investments the only real use if the CDIC, as I see it, is twofold. Firstly it provides confidence to an individual that the financial institution with which they are dealing with is legitimate. Secondly it would likely provide protection for emergency funds typically held in savings accounts.
    Although the CDIC provides a welcome and needed service, I hope that people understand that this is NOT indented to change investment strategies from more growth based approaches to minimal yield GICs and savings accounts.



  2. MerryBMerry on December 24, 2017 at 2:13 pm

    Yes. I was made aware of this the hard way during the Home Capital Group turbulence this year. I know the insurance was up to 100K and thought that would cover my savings account and a GIC placed with them. What I didn’t know it is per institution not per account. The real possibility of losing either one of them left me sleepless for a while. On the other hand I don’t think we will have a run on the Banks just yet and if we do, we will have a lot bigger problem on our hands



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