45 articles Comparison

Canadian deposit insurance: CDIC vs CIPF vs provincial coverage. Should you care?

Canadian deposit insurance

You place a substantial amount of trust in financial institutions to take care of your money, whether you have a chequing account that has just enough cash to pay the bills or a Registered Retirement Savings Plan account that you are using to create a retirement nest egg.

What happens if a financial institution fails for any reason? As a Canadian investor, you should put your savings in a financial institution that is eligible for deposit insurance.

In Canada, there are three primary ways to safeguard your capital in case your bank or investment dealer fails:

  • Canadian Deposit Insurance Corporation (CDIC)
  • Provincial deposit insurers
  • Canadian Investor Protection Fund (CIPF)

The deposit insurance provided by each of these can protect your savings if the financial institution fails. As an investor, you don’t need to apply or pay for deposit insurance. They automatically insure your eligible deposits. However, there are differences in how CDIC, CIPF, and provincial deposit insurance work.

I’ll give you a breakdown of these insurance coverages to help you understand how they work and why they can be essential for you.

Canada Deposit Insurance Corporation

The CDIC is owned by the Canadian government. It insures your funds for up to $100,000 per eligible deposit category per financial institution. Deposit categories include non-registered funds, TFSAs, RRSPs, RRIFs, and more. In other words, for a given financial institution, you have separate coverage of up to $100,000 for each deposit category.

Most Canadian banks are members of the CDIC. Within each deposit category, CDIC covers term deposits, money orders and drafts, savings and chequing accounts, and travellers cheques. The CDIC also recently added USD deposits to what is eligible for coverage.

The CDIC has additional tools to help you understand what its insurance does and does not cover.

Note that CDIC coverage does not insure your deposits when it is a loss due to theft or fraud.

Quebec AMF

The federal deposit insurance protection is the same for all CDIC member institutions throughout Canada except in the province of Quebec. Quebec has its own insurance plan under the administration of l’Autorité des marchés financiers (AMF).

If a financial institution is covered by both AMF and the CDIC, deposits made in Quebec are insured by AMF. If the deposit is made outside of Quebec, then it will be insured by the CDIC.

The maximum collective coverage from both agencies cannot exceed $100,000 per depositor for each insured category per institution.

Provincial deposit insurance

Each of the ten provinces in Canada has a provincial deposit insurer that protects provincial credit unions:

Alberta, BC, Manitoba, and Saskatchewan provide unlimited coverage. All of the other provincial insurers — with the exception of Quebec — provide more than $100K coverage.

There have been cases where coverage by a particular financial institution has changed, such as when Coast Capital Savings converted from a BC credit union to a national bank. In that case, they outlined transitional coverage.

7 of the financial institutions on our high interest savings comparison chart are Manitoba credit unions, so let’s dig a bit deeper into the relevant coverage. As per the Deposit Guarantee Corporation of Manitoba (DGCM), they provide a “100% guarantee of all deposits in Manitoba credit unions regardless of where the depositor resides. Deposits guaranteed include chequing/savings accounts, term deposits/GICs including TFSAs, RRSPs, RRIFs, RESPs. The guarantee does not cover non-deposit instruments, examples of which include common shares, surplus shares, preferred shares, mutual funds and self-administered RRSPs that are not deposits (e.g. equity shares, mutual funds).”

Some key elements of how the DGCM operates include:

  • Credit unions are expected to main capital and liquidity levels above legislated minimum standards.
  • The DGCM maintains a Guarantee Fund, funded by quarterly premiums paid by Manitoba credit unions.
  • The current target size of the Guarantee Fund is 1.05% to 1.30% of deposits and is based on a statistical model with over 400,000 scenarios.
  • If for some reason there is insufficient money in the Guarantee Fund if a credit union were to fail, other remedies are available in The Credit Unions and Caisses Populaires Act of Manitoba, including the ability to raise additional funds from all Manitoba credit unions, arrange mergers between credit unions, and approach the Manitoba government for financial assistance.

Canadian Investor Protection Fund

The CIPF protects the investments held by financial institutions like banks, companies that sell investment products, and investment dealers.

The institution needs to be a CIPF member for your funds to be insured. Here is a breakdown of CIPF coverage limits:

  • Up to $1 million for general accounts combined like cash accounts, margin accounts, Tax-Free Savings Accounts
  • Up to $1 million for all registered retirement accounts combined like RRSPs, Registered Retirement Income Funds (RRIFs) and Locked-In Retirement Accounts (LIRAs)
  • Up to $1 million for all Registered Education Savings Plans (RESPs) combined where the client is a subscriber of the plan.

One of the main things to note is that cash deposits are covered by the CIPF, but the value of other investments are not. Suppose you held 100 shares in Company A through an investment firm (Company B). If the investment firm were to fail, the CIPF would ensure that you still hold the 100 shares in Company A, but without any guarantee of the value of those shares.

Wealthsimple Cash: when you have CIPF coverage but not CDIC coverage

The launch of Wealthsimple Cash highlighted a potentially confusing situation: Wealthsimple Cash advertises features similar to a normal bank account (albeit with hybrid chequing and savings account features) but does not have CDIC or provincial deposit insurance; it has CIPF insurance. The money held in your Wealthsimple Cash account is deposited in trust (through Wealthsimple’s subsidiary ShareOwner Investments Inc.) with one or more of the big six Canadian banks, otherwise known as “domestic systemically important banks”.

Suppose you had $1,000,000 deposited in your Wealthsimple Cash account:

  • If one of the big six banks where your money is deposited goes bankrupt, you are not guaranteed to get your money back, because this deposit is not eligible for CDIC coverage.
  • If Wealthsimple goes bankrupt, you are guaranteed to get your money back.
  • If ShareOwner Investments Inc. goes bankrupt, you are guaranteed to get your money back.

In other words, with Wealthsimple Cash, you technically have higher insurance coverage through the CIPF than through the CDIC, but you are not covered if one of the big six banks fails. It is significantly more likely for Wealthsimple or its subsidiary to fail than for a big six bank to fail, but it is worth noting the details of what is not covered.

So should you care about the difference between CDIC, CIPF, or provincial deposit insurance?

Between CDIC and provincial coverage for credit unions, I don’t see much difference in terms of the effective safety of your deposits. Provincial coverage outside of Quebec is actually higher than with the CDIC, so that might factor into your decision of which institution to go with. The CDIC provides a more explicit government backing, although as per the details provided by the DCGM (Manitoba), provincial insurance is extremely robust.

In many cases, the CIPF provides coverage for a different type of investment than your standard savings account or GIC, but there are examples such as Wealthsimple Cash that blur the line.

Deposit insurance strategies to extend your coverage

Generally, whether you are looking at a financial institution with CDIC, provincial deposit insurance, or CIPF coverage, you can spread your risk and extend your coverage by depositing your funds for all account types in multiple financial institutions.

Some savers use a strategy to effectively extend their CDIC coverage by splitting their deposits between related companies. For example: Peoples Trust is covered by the CDIC for up to $100,000 in each of the eligible deposit categories, and Peoples Bank has separate and equal coverage. Peoples Trust and Peoples Bank are both owned by Peoples Group, and have similar interest rates for their savings accounts.

If you have maxed out your CDIC coverage on one account and need more coverage but at the same interest rate, you could open an equivalent account with the other bank. Another advantage is consistency in the brand and service experience, if a customer likes dealing with Peoples companies in general.

However, it might be wiser to spread out the risk and deposits to another completely separate bank. If Peoples Group or one of its subsidiaries were ever in danger of bankruptcy, then the related companies would have an increased risk of bankruptcy as well. It would be quite a hassle to go through two separate CDIC insurance claims at the same time, and your money would be tied up during that period.

Conclusion

As a Canadian, your deposit insurance options are diverse. If you play your cards right, 100% of your deposits could be covered by some form of deposit insurance. Even though Canadian banks are among the safest in the world, you never know what can happen in the future!

Author Bio – Christopher Liew is the creator of Wealthawesome.com, where he shares money tips and guides for his readers. He’s a CFA Charterholder who has been featured on Yahoo Finance, MSN Money, and The Motley Fool. Read about how he quit his 6-figure job to travel the world.

Savers Roundup June 2020: where to lock in your money; changes to cash back credit cards; Pace Securities drama

Time value of money

Another round of cuts

In terms of savings account interest rate changes, it had been a relatively slow drop since the last Bank of Canada policy interest rate cut on March 27. However, since June 1st, 10 out of the 17 financial institutions on our comparison chart have decreased their interest rates, including Hubert Financial and Alterna Bank, who have both dropped their rates twice this month, to rest at 1.80% and 1.69% respectively. Oaken Financial’s savings account interest rate decreased from from 2.00% to 1.65%. Only 6 out of the 17 financial institutions we track now have a savings account interest rate of 2.00% or higher.

For the time being, Bridgewater Bank has the top savings account interest rate on our chart at 2.10%, while Motive Financial leads the TFSA rates at 2.05%.

GIC rates have continued to trend lower, with the current leaders being:

  • 1-year GIC at 2.00% at AcceleRate Financial, Achieva Financial, Implicity Financial, MAXA Financial, and Outlook Financial
  • 2-year GIC at 2.10% at Wealth One Bank of Canada
  • 3-year GIC at 2.20% at Wealth One Bank of Canada
  • 4-year GIC at 2.20% at Achieva Financial, Hubert Financial, Peoples Trust, and Wealth One Bank of Canada
  • 5-year GIC at 2.30% at Hubert Financial, Oaken Financial, and Peoples Trust

There are some promotions left

Promotions have been drying up, but there are still some available, including:

We have a page to track all current promotions, including savings accounts, chequing accounts, GICs, and our cash back offers.

Credit card reward program devaluations too!

Recently, some Rogers Mastercard devaluations took effect on June 2. If you use the Rogers Mastercard for purchases in foreign currencies, you might want to review our list of credit cards with no foreign currency exchange transaction fees.

Some changes are coming soon on August 1 to the Canadian Tire Triangle Mastercard: its earn rate on grocery store purchases is going up from 1.00% to 1.50%; but its earn rate on non-Canadian Tire, non-grocery store purchases is going down from 0.80% to 0.50%.

Interesting forum threads to catch up on

Savers Roundup May 2020: a minimum 2.00% return is what you should be getting

May flowers

The slow but steady downward march for interest rates

Relative to previous months, it’s been quiet for savings account interest rate changes lately. Over the past month, we’ve seen savings account interest rate decreases at Alterna Savings, Ideal Savings, Motive Financial, motusbank, and Wealth One Bank of Canada. There was even an increase in rates at Canadian Tire Bank.

Our comparison chart still has 13 out of 17 financial institutions with rates of 2.00% or more.

Frequent GIC rate leader Oaken Financial decreased its GIC rates several times over the past few weeks. In general, the spreads between a given financial institution’s 1-year and 5-year GIC rates have been getting smaller. The current top rate on our GIC comparison chart for a 1-year term is 2.15% at Hubert Financial, and the 5-year term leaders are Peoples Trust and Oaken Financial, both at 2.40%.

Luminus Financial actually has better GIC rates across the board than any other bank on our chart, but be sure to review their fees, which are reportedly higher than others.

Promotions to get you through the next few months

If you don’t mind moving your money around, you might find these short-term promotions tempting:

More news: your taxes are almost due; coming soon for Hubert Financial; a caution on Credit Verify

Savers Roundup April 2020: some rates are up in this uncertain economy

Savings account interest rates vs Bank of Canada key interest rate: Nov 16, 2010 through April 16, 2020

Savings account interest rates are still holding up

After decreasing the key interest rate by 1.00% in the first 2 weeks of March, the Bank of Canada lowered it one more time by 0.50% to rest at 0.25%, where it has stayed through the April 15 scheduled rate announcement. Although we have seen related decreases to high interest savings account rates across our comparison chart, financial institutions have not yet passed on the full rate decrease via the savings accounts, at least not yet. See this graph tracking the key interest rate against 2 of the more consistent financial institutions for savers over the past 9.5 years (Hubert Financial and Achieva Financial), and how the gap has widened:

Savings account interest rates vs Bank of Canada key interest rate: Nov 16, 2010 through April 16, 2020

Last month, we were musing that we would be lucky to make it out of March with a 2.00% savings account, but 15 of 17 financial institutions on our chart currently have regular savings account interest rates of at least 2.00%. LBC Digital leads the pack at 2.25%, while Motive Financial has the highest TFSA rate at 2.20%. Peoples Trust has even increased its regular savings account and TFSA interest rates from 1.80% to 2.00%, reversing an equivalent decrease from March 6.

Some GIC rates actually increased, if only temporarily

Although GIC rates have generally dropped, several financial institutions increased their rates last month.

Tangerine Bank provided some shocking GIC rate increases by as much as 1.70%, with their 5-year GIC peaking at 3.20%, only to drop back to the middle of the pack a week later.

Oaken Financial had increased most of its GIC rates for about 1 month before decreasing them a bit, settling for what are currently the highest rates on our GIC comparison chart, with a 1-year GIC at 2.50% and 2- through 5-year GICs all at 2.65%. Remember that you can see a financial institution’s GIC rate history by clicking on the links in the “Updated” column on our chart. [Oaken Financial announced GIC rate decreases, effective 5 days after this article was published.]

If you’re looking at the short term, there are at least 2 current 2.45% 90-day GIC offers, from EQ Bank and Oaken Financial. [EQ Bank’s 90-day GIC rate dropped to 2.15% one day after this article was published.]

BC-only credit union Vancity has a promo for a 1-year 3.00% GIC. [Vancity ended this promo one day after this article was published.]

New deposit promos

If you have a Tangerine Bank account, check the online interface to see whether you have the latest 2.80% new deposit promo, which started April 3. They are offering the same 2.80% savings account interest rate for the first 5 months to new clients.

DUCA Credit Union (Ontario only) has a promo offer of 2.50% on new deposits to an Earn More Savings Account between April 2, 2020 and March 31, 2021. They also have a 1-year 2.75% GIC available until June 30, 2020 for customers who currently have funds in an Earn More WINTER Promo Savings Account.

As always, we have a dedicated page to track all known promotions.

Good news amidst the pandemic

Savers Roundup March 2020: How low can rates go?

Money graph pointing down

Sub-2.00% savings accounts are soon to be the norm?

Only a couple of months ago, we were debating how long LBC Digital’s 3.30% savings account interest rate would last, and now we’ll be lucky to make it out of March if any of the financial institutions on our chart have a 2.00% savings account. On March 4, 2020, the Bank of Canada lowered its key interest rate by 0.50%, and less than 12 days later in an unscheduled rate decision, it lowered the rate by another 0.50%.

Most financial institutions have lowered their savings account interest rates, with the biggest drops from LBC Digital (from 2.80% to 2.25%) and Motive Financial (from 2.80% to 2.20%). Ideal Savings currently leads our chart at 2.31% for both the regular savings and TFSA accounts, but look for more changes on our chart in the coming days and weeks, if not by the time today is over. The Bank of Canada might still lower its rate further — consider that the US government just lowered its target rate for a third time in March. Some Canadian financial institutions haven’t even adjusted their rates after the first cut, and most of them haven’t yet reacted to the second cut.

The last time interest rates were this low, 1.75% was the top savings account interest rate (until EQ Bank launched), and Zag Bank was still a going concern.

Rare remaining higher rates

Targeted, limited-time higher rate offers, especially for net new deposits, started to become a hot topic of discussion on our site in 2013. 7 years later, this trend has continued. Tangerine Bank’s latest targeted new deposit promo (up to 3.00% for 4 months) started on March 2nd. Simplii Financial’s 2.80% offer ends on April 30, 2020, although someone has reported receiving an offer for 3.15%. DUCA Credit Union (Ontario only) has a 3.00% new deposit promo that recently got extended to June 30, 2020. All of these are listed on our promotions page. They also all appear to keep the total rate the same even if the base, non-promo rate drops. Be careful of other offers where the total rate can drop when the base, non-promo rate drops.

GIC rates have been dropping across the board, although not as deeply as savings accounts. This might be a good time to review whether you want to lock in any GIC rates before we see further rate drops. Oaken Financial and Wealth One Bank of Canada are at or near the top on our GIC chart for 1- through 5-year rates. The most recent round of Oaken Financial GIC rates decreases took effect on March 13, although they gave people 1 week of advance notice. EQ Bank is currently offering a 2.45% 3-month GIC, 2.45% being its previous savings account interest rate until it was decreased to 2.00%.

Good news: you might have uncashed cheques from the Government of Canada

The CRA online My Account area now has a section allowing you to see whether you have any uncashed cheques from the government. Be sure to switch to direct deposit in order to minimize your chance of future uncashed government cheques.

Changes to credit cards and more