Are chequing and savings accounts insured?

Insurance is one of those budget items that’s never fun to buy or easy to appreciate until something really bad happens. In other words, you don’t need insurance until, well, you really need it. Insurance for your money, on the other hand, is a different story. Your chequing and savings accounts come with insurance that you don’t have to separately pay for — how awesome is that?

The Canadian government provides a certain amount of insurance for each type of account you have. The mechanics and type of insurance vary a bit from province to province but the end result is the same: If the financial institution with which you bank fails or goes out of business, your money is safe through the Canadian Deposit Insurance Corporation (CDIC). However, there are a few types of events that the CDIC will not insure. Not to worry though — we’ll go over them to ensure you understand when the CDIC will and won’t apply.

How much insurance do I get?

The CDIC will insure up to $100,000 in each type of account per individual. Let’s take a closer look at the types of accounts.

Deposits held in one name

This is your normal chequing or savings account. It’s where you get your direct deposit payroll, withdraw cash from, or sock away funds for a rainy day. If you have any kind of chequing or savings account, and it’s only in your name, it’s insured.

Deposits held in more than one name

Let’s say you’re married and have a chequing or savings account in both your and your spouse's name. This account is also insured for up to $100,000. It doesn’t matter how many depositors there are; you could have your entire family using one account. It is still insured for $100,000.

In order to qualify for this protection, the account holder just has to provide

• A statement showing that the account is jointly held, and

• The name and address of each of the account holders.

If the financial institution holding the joint account fails, all of the depositors get a single payment.

Qualifying deposits held in a Registered Retirement Savings Plan (RRSP)

Your retirement savings are also insured by the CDIC, but it's important to recognize that not all savings deposits qualify for this protection. Guaranteed Investment Certificates (GIC) and Term Deposits qualify for insurance while stocks, bonds, and mutual funds do not. This is an important distinction because the vast majority of RRSP accounts generally rely on those three types of instruments as investment vehicles.

The CDIC does this for an important reason: Stocks, bonds, and mutual funds are more volatile than GICs or Term Deposits because the funds are invested with a fluctuating market. The Canadian government does not want to be in the position of backstopping investments that have an inherent risk of loss.

Let’s break down how this insurance situation would look like in real life. If you have $10,000 in a GIC, $25,000 in a Term Deposit, and $65,000 in stocks, bonds and mutual funds, the CDIC will only insure $35,000 of your RRSP.

Qualifying deposits held in a Registered Retirement Income Fund (RRIF)

The same kinds of funds that qualify in RRSPs are also insured in RRIFs. The CDIC does not insure stocks, bonds, and mutual funds but does back GICs and Term Deposits. Life Income Funds (LIF), Locked-In Retirement Income Funds (LRIF), and Restricted Life Income Funds (RLIF) are also included in the $100,000 total.

Deposits held in a Tax-Free Savings Account (TFSA)

Deposits in TFSAs follow the same rules as above: GICs and term deposits qualify for insurance up to 100,000, while stocks, bonds, and mutual funds do not.

Deposits held in trust

Trusts are legal structures to protect assets for beneficiaries. They are often used when parents want to ensure their children have protected assets if they die. The CDIC also insures up to $100,000 of deposits held in trust as long as a few key disclosures are made:

• The trust is valid according to the laws and regulations of the province in which the depositors reside

• The names and addresses of the beneficiaries and evidence of the eligible funds being held in trust for a beneficiary are found on statements at the failed financial institution

For example, say your grandmother wants to ensure you have a nice chunk of change for a down payment on a house. She places $45,000 in stocks and bonds in a trust, as well as $35,000 in GICs. The CDIC will insure $35,000.

Deposits held to pay property taxes on mortgaged properties

If held in a separate account, the money you use to pay property taxes on your home is also insured by the CDIC.

So what does this all mean?

On paper, you are eligible for up to $700,000 worth of CDIC deposit insurance spread across the six types of accounts. In reality, very few people will have qualifying amounts in each type of account. What you may have, however, is more than the amount that’s insured for a single type of account. There are several options for making certain the “excess” money in those accounts is still insured.

First, if you have cash in a particular account over the insurable limit, and don’t need it all at once in the near term, consider moving it to another type of account such as a GIC or Term Deposit.  Alternatively, consider making a deposit into a retirement account; some of the value will be insured and some will not. However, at least your money is working for you via investment. Finally, you may choose to simply spread the money out. Insurance is tied to the institution so if you open a separate account at a different bank, you’ll again have $100,000 of insurance on qualifying balances.

What’s not covered?

As we already discussed, stocks, bonds, and mutual funds aren’t covered under CDIC. One thing we haven’t talked about, however, is losses relating to fraud or theft. The CDIC only insures funds that are lost as a result of the financial institution failing. This could mean that the institution goes out of business or somehow loses the deposits of their members.

The CDIC does not insure funds if you are the victim of fraud or your funds are stolen by another party. Your bank may elect to help you recover funds if they are stolen, but there is no guarantee that they will be able to do so. Experts recommend using a credit card to shop, then using your chequing account to pay that balance. This is just one way to ensure your money is protected from scams and identity theft.

Ensuring you understand the limits of deposit insurance can help you keep your money safe and ultimately, push you to put it in places that are most helpful to you. The most important tip to remember here: Always bank with a financial institution that participates in the CDIC insurance program.