When I compare bank accounts, I usually look at the interest rate, fees, and how easy it is to access my money. But there is another question that’s easy to overlook: who is actually holding it?
For example, EQ Bank and Wealthsimple are both popular options that offer hybrid chequing accounts with competitive rates and features, and are often directly compared. But one is a bank and the other is not.
An app can let you receive your pay, earn interest, and pay bills without the company behind it being a bank. Why does this matter? Understanding where your money goes can help you understand how it’s protected. There are a few details that are easy to miss when we mainly focus on the rate being advertised.
Fintechs and digital banks: what’s the difference?
Digital banking describes how services are delivered. A digital bank operates mostly online (and might only have a few or no branches) while being offered directly by a licensed bank, through a bank’s trade name, or through a credit union division.
Some examples of digital banks include:
- EQ Bank: a CDIC member
- Haventree Bank: a CDIC member
- Hubert Financial: a division of Access Credit Union. Eligible deposits are protected through the Deposit Guarantee Corporation of Manitoba.
- Saven Financial: a division of FirstOntario Credit Union. Eligible deposits are protected through Ontario’s Financial Services Regulatory Authority, or FSRA.
- Tangerine Bank: a CDIC member.
By comparison, Neo Financial, Wealthsimple, Wise, and KOHO are examples of non-bank fintech providers. Both digital banks and fintechs might offer services solely through apps and online banking.
Fintech is short for financial technology. It is a broad term, but the distinction here is between non-bank companies offering financial services and the banks or credit unions holding deposits.
Non-bank fintechs can offer products that resemble bank accounts, but “these companies don’t have banking licences, are not CDIC members and are not insured by the CDIC”. Eligible customer deposits placed through them may still qualify for protection.
What the CDIC member list can teach us
Bank names and trade names can be checked against the Canadian Deposit Insurance Corporation’s (CDIC) member list. However, it offers far more information than just a list.
Using the CDIC member search, you might learn a thing or two about your bank:
- Tangerine Bank is a separate CDIC member from Scotiabank, even though Scotiabank owns it.
- Simplii Financial, however, is a trade name of CIBC, so eligible deposits in the same CDIC category are combined with deposit you might have at CIBC.
- Peoples Bank of Canada and Peoples Trust Company are separate CDIC members.
- Oaken Financial is a trade name used by both Home Bank and Home Trust Company, which are separate CDIC members. Therefore, you could potentially receive twice the CDIC coverage for each deposit category for your money that is placed through Oaken Financial.
Credit unions and their divisions that are covered under provincial deposit insurance can be found on the equivalent websites, such as for Ontario (where you’ll find Saven Financial) or Manitoba (where you’ll find Hubert Financial).
Being absent from the deposit insurance lists doesn’t tell the whole story
You won’t find fintech companies listed as CDIC members themselves. However, that alone doesn’t explain whether a particular account has deposit protection.
CDIC says protection can apply when a fintech places eligible deposits at a member institution in your name, or through a qualifying trust arrangement where you are identified as a beneficiary. Simply saying the money is “held at a bank” isn’t enough. “Held in trust” means someone holds money for someone else’s benefit. In this situation, the fintech acts as the trustee and the customer is the beneficiary. The money is being held for the customer rather than belonging to the fintech for its own use.
For CDIC protection to extend to individual beneficiaries, the arrangement must meet the applicable trust and disclosure requirements. Wealthsimple’s chequing account and Wise’s eligible deposits are examples of providers disclosing this type of arrangement. That makes it useful to ask how the account works rather than assume the absence of the fintech’s name from CDIC’s list means there is no protection.
KOHO is an example where checking the specific product matters. Its disclosures say balances with “Earn Interest” active can qualify for CDIC protection through its trust arrangement, while accounts not earning interest are not eligible for CDIC protection. It is worth checking the conditions attached to an account rather than assuming every balance with the same company receives identical protection.
Does money held through a fintech share your existing bank’s limit?
If a fintech places money into an account in your own name at a CDIC member institution, it is combined with your other eligible deposits in the same coverage category at that institution. For example, suppose you already have $100,000 in an individual savings account at Bank A. A fintech then places another $100,000 into an account in your name at Bank A in the same category. Those deposits would share the $100,000 limit.
However, qualifying trust deposits work differently. CDIC protects them separately from deposits you hold personally at the same institution.
For example, $100,000 in your own savings account direct at Bank A and $100,000 held for you through a qualifying fintech trust arrangement at the same bank can have separate protection, subject to the applicable rules and limits. However, deposits placed by the same trustee for the same beneficiary at that bank are generally combined for the trust coverage limit.
CDIC’s $100,000 limit has more to it
Many people know the $100,000 number (which might be going up to $250,000 as part of the federal government’s next budget), but the CDIC has nine separate coverage categories. These include deposits held individually, jointly, in trust, and eligible deposits within RRSPs, RRIFs, TFSAs, RESPs, RDSPs and FHSAs.
Coverage includes principal and interest, with separate limits for each category at each member institution. Opening several accounts in the same category at the same institution does not automatically give each account another $100,000.
For example, suppose you hold these eligible deposits at one CDIC member bank:
- $80,000 in an individual savings account
- $60,000 in a TFSA GIC
Both amounts could be fully protected because they fall into separate categories, assuming you have no other deposits that push either category over its limit, including interest. But if that $60,000 GIC were held individually outside a registered account, it would share the category with the $80,000 savings account. Of the combined $140,000, only $100,000 would be insured. Holding something inside a TFSA does not automatically make it eligible for CDIC protection either. Stocks, ETFs, and mutual funds are not covered by CDIC (but rather the CIPF).
How Wealthsimple advertises up to $1 million in coverage
Wealthsimple advertises up to $1 million in combined CDIC coverage for eligible chequing deposits. It does this by spreading funds across partner institutions using a trust arrangement. Wealthsimple specifically explains that customers can have coverage through that arrangement as well as coverage for their own deposits at its partner banks. Although Wealthsimple does not break down for each customer where their deposits are held, customers also don’t need to think about which banks they might already have accounts with.
This does not mean CDIC increased its limit to $1 million at one bank. Wealthsimple’s disclosures say that funds must be spread across at least 10 CDIC member institutions to reach that amount, subject to the applicable coverage and disclosure rules.
It is also important to check the exact product. Wealthsimple’s separate, non-registered Savings account is held through Wealthsimple Investments Inc. and uses CIPF protection rather than CDIC. Its Registered Savings Account has a different arrangement involving CDIC-eligible deposits. Similar names within one app can refer to different protection.
For example, someone holding $10,000 in Wealthsimple’s non-registered Savings account has cash held through Wealthsimple Investments Inc. This account uses CIPF protection rather than CDIC. CIPF can protect eligible cash that is missing and cannot be returned following the investment firm’s insolvency, subject to its coverage rules and limits.
By comparison, someone holding $10,000 in Wealthsimple’s TFSA Registered Savings Account has cash held in trust at CDIC member institutions. Eligible deposits receive CDIC protection against the failure of the bank holding the money, subject to the applicable requirements and limits. This product is also available as an RRSP or FHSA.
Both products let customers earn interest on cash within the same app, but the protection works differently. The distinction comes from how the specific product holds the money. It does not mean every Wealthsimple TFSA has CDIC protection. For example, a self-directed TFSA holding stocks or ETFs uses CIPF protection for eligible assets rather than CDIC deposit insurance, and CIPF does not cover market losses.
For a more in-depth review of various types of deposit insurances, see our article “Canadian deposit insurance: CDIC vs CIPF vs provincial coverage. Should you care?”
What if the fintech fails instead of the bank?
The CDIC protects eligible deposits against the failure of the member institution holding them. It does not insure the fintech company itself. If a fintech fails, CDIC does not take over that company’s bankruptcy process. With a qualifying trust arrangement, the customer funds remain in trust at the member institution (and are safely insured), but recovering them may involve the applicable bankruptcy and legal proceedings. Deposit protection and immediate access to money are different questions.
Safety also depends on what makes you comfortable
Some savers prefer federal CDIC coverage even when provincial protection offers higher limits. Eligible deposits at provincially regulated BC credit unions, for example, have unlimited protection through the CUDIC. The exact structure and rules differ by the insurer, so comparing the maximum dollar amount is only part of the decision.
Some see Wealthsimple’s expanded coverage as a benefit; others are turned off by the details.
People might also worry about the inconvenience of an institution failing, even when their deposits are insured. The CDIC’s most recent listed member failure was in 1996. The CDIC might support a sale or restructuring of a bank, thus a failure does not always mean closing the institution and mailing everyone a cheque.
If you can understand where your money is held, what protection applies, and what the limits are, you can make a more informed choice that is right for you.
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