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CDIC limits and perceived safety of some FIs
November 8, 2020
11:03 am
rhvic
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No doubt CDIC limits have been discussed here before, and comparisons made between CDIC and some of the provincial limits at some credit unions.

I am interested in how safe people here now feel that their deposits are, if they make deposits above the CDIC limits.

I normally do not exceed whatever the coverage limit is for the FI I am using. But these days, with so few good interest rate offers out there, one is now tempted to perhaps exceed those limits, and park more cash with a particular FI to maximize interest earnings.

I am wondering: is it 'relatively' safe to put in more than the CDIC limits with say Simplii or Tangerine, during their current 2% or so promo offers? Both of these are supposedly backed by major banks, so are people comfortable putting in excess deposits above CDIC coverage limits, for five months or so of higher interest?

November 8, 2020
11:16 am
Norman1
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With Simplii, yes. With Tangerine, no to maybe. sf-laugh

Simplii is CIBC. Literally and legally. Simplii is just a brand name for deposits that are actually with CIBC. CIBC deposits currently have a DBRS rating of AA, which is a bit better than the Province of Ontario at AA(low) and a bit worse than the Province of British Columbia at AA(high). So, CIBC or Simplii deposits have the estimated default risk around that of Province of Ontario or Province of British Columbia bonds.

Tangerine Bank is a separate bank owned by Bank of Nova Scotia. Tangerine Bank is no longer rated by DBRS and not rated by any other debit rating agency. So, the risk is unknown.

I've looked but never found any statement from Bank of Nova Scotia that they unconditionally guarantee the deposits of Tangerine Bank. In contrast, TD Bank has issued such a statement for the deposits of some of their wholly owned subsidiaries like TD Mortgage Corporation.

November 8, 2020
11:23 am
Kidd
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rhvic said
No doubt CDIC limits have been discussed here before, and comparisons made between CDIC and some of the provincial limits at some credit unions.

I am interested in how safe people here now feel that their deposits are, if they make deposits above the CDIC limits.

I normally do not exceed whatever the coverage limit is for the FI I am using. But these days, with so few good interest rate offers out there, one is now tempted to perhaps exceed those limits, and park more cash with a particular FI to maximize interest earnings.

I am wondering: is it 'relatively' safe to put in more than the CDIC limits with say Simplii or Tangerine, during their current 2% or so promo offers? Both of these are supposedly backed by major banks, so are people comfortable putting in excess deposits above CDIC coverage limits, for five months or so of higher interest?  

The very simple answer is "yes" cdic limits mean jack.

If a bank like tangerine is allowed to fail, we will all be peeling off wallpaper to eat the old paste. A large bank failing in canada would cause a ripple, there would be a run on the other banks. SO... what would happen, the other banks would save the one going under, and the government of canada would assure all of us... everything is going to be okay.

That's my opinion but what do i know?

November 8, 2020
11:23 am
canadian.100
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rhvic said

I am wondering: is it 'relatively' safe to put in more than the CDIC limits with say Simplii or Tangerine, during their current 2% or so promo offers? Both of these are supposedly backed by major banks, so are people comfortable putting in excess deposits above CDIC coverage limits, for five months or so of higher interest?  

I believe it is extremely low risk to exceed CDIC limits at Simplii and Tangerine.
If CIBC or Scotia were having problems (which they are certainly not having), I believe the Bank of Canada would provide adequate support to maintain stability.

November 8, 2020
12:07 pm
Norman1
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CIBC and Bank of Novia Scotia are systemically important. Tangerine Bank is not.

Bank of Canada can let Tangerine Bank fail if it should ever come to that.

November 8, 2020
12:15 pm
AltaRed
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Norman1 said
CIBC and Bank of Novia Scotia are systemically important. Tangerine Bank is not.

Bank of Canada can let Tangerine Bank fail if it should ever come to that.  

But Scotiabank isn't going to let Tangerine fail due to huge reputational damage to their brand. I wouldn't give a second thought to having millions in these banks.

As for the independents, well, they don't have the same institutional reputational damage to protect. I would be okay being somewhat over on a BBB+ rated bank, and more so with A- rated, but most definitely not with BBB- or lower (think Oaken Financial/Home Trust).

November 8, 2020
12:30 pm
canadian.100
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AltaRed said

But Scotiabank isn't going to let Tangerine fail due to huge reputational damage to their brand. I wouldn't give a second thought to having millions in these banks.

  

AltaRed is absolutely correct.
Reputational damage IS a very big deal. Scotia would not let Tangerine fail for that reason alone. (Fortunately Tangerine is sufficiently profitable - so "letting it fail" is really a non-issue.)

November 8, 2020
1:01 pm
Norman1
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Reputation damage is not as big of a deal as you think.

Should it ever come to that, Bank of Nova Scotia will calculate the damage and act accordingly. If it was going to cost Bank of Nova Scotia a few million to fix the problem, then I'm sure it would inject a few million into Tangerine Bank. A few billion? No.

BCE did that many years ago with BCE Development and let BCE Development fail.

The failed company even had "BCE" in its name. So, it was quite obvious it was a BCE family company that failed.

That even confused some of the BCE Development shareholders. They showed up at the subsequent BCE annual meeting and asked why their BCE Development shares are now worthless when everything was going so well. The chairman of the board reminded everyone that this was the annual meeting of BCE and not BCE Development!

All the slides are about BCE which was doing well. Former subsidiary BCE Development, not so well.

You are also assuming Bank of Nova Scotia has a choice. It may not and may also be reeling by whatever impacted Tangerine Bank. Bank of Nova Scotia shares operational expertise with Tangerine Bank. Whatever hit Tangerine Bank could have also hit its parent. That would be a perfect excuse for Bank of Nova Scotia. $3 billion was needed but it didn't have $3 billion to spare.

November 8, 2020
1:06 pm
AltaRed
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Of course, it is not totally infallible given it is a separate corporate entity but I still wouldn't give a second thought to Tangerine being at risk (not that I have ever had any money with them post-ING buyout).

November 8, 2020
2:21 pm
Rick
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I stay basically within a couple grand of the limits, though considering going over when my CC GIC comes due later this month. CDIC isn't going to be worth the paper it's written on if one of the big banks goes under and starts a domino effect. Same with provincial backed CU's with significantly higher limits or no limits. Expect pennies on the dollar, if that. The term "blood from a stone" comes to mind. That being said, there would have to be a literal zombie apocalypse for that to happen.

November 8, 2020
3:14 pm
topgun
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Rick said
I stay basically within a couple grand of the limits, though considering going over when my CC GIC comes due later this month. CDIC isn't going to be worth the paper it's written on if one of the big banks goes under and starts a domino effect. Same with provincial backed CU's with significantly higher limits or no limits. Expect pennies on the dollar, if that. The term "blood from a stone" comes to mind. That being said, there would have to be a literal zombie apocalypse for that to happen.  

In the early 1990's I had two trust companies fail. One I collected the interest until the day I received my money. The other the interest stopped the day the trust company failed. I received the principle in full. I believe CDIC limit was $60,000. Not close to the limit. My GIC tracking program extrapolates to maturity date. If I should ever get near the limit I will not invest with the FI and move the funds elsewhere. We will be fine. Have fun.

Have a Great Day

November 8, 2020
3:37 pm
Alexandre
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I do not exceed CDIC limits. Thanks to this web site, I can easily get list of banks to open accounts with, if accounts with those I already have are reaching the limit. Sort by top interest in Savings, and exclude credit unions (personal preference).

Less than maximum possible interest rate on banks below top I consider to be an insurance premium for keeping my money safe.

Now that interest %% on Saving accounts are rapidly declining, it makes even less sense to risk it and exceed CDIC limit. In my opinion.

November 8, 2020
8:05 pm
Loonie
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I think Norman's analysis is sound.

In addition, to state what may be obvious, people who have "millions", as AltaRed put it, that they want to deposit in banks will not have a choice, realistically. If you have, say, five million, it would require at least 50 banks to hold it all insured (assuming no joint accounts). If you managed to set up all these accounts (which I doubt would even be possible), your average rate of return would be poor. It is for this reason that institutional investors buy government bonds. They know the rate is poor but they want/need the safety.

So, to some extent, it comes down to how much money you are talking about. Simplii may be the only one that has fairly good rates (at least some of the time) that is a constituent part of a major bank with a superior credit rating.

November 9, 2020
1:27 am
RetirEd
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Typically, banks and trust companies do not fail, but are sold off (at discount rates) to other financial institutions. The shareholders or owners of the stressed companies take the hit.

That's why it's so important for Canada's airlines to refund money owing stranded passengers. If they hold it as flight vouchers, then

(a) those vouchers devalue with time
(b) those vouchers don't get the benefit of any discounts their original bookings got (much as when a used-car dealer has to take back a lemon, but the credit you get has to be spent on whatever deal they want to make you once you have no option to go elsewhere!)
and, most importantly...
(c) if those airlines go into bankruptcy or bankruptcy reorganization, those vouchers are almost certain to be repudiated. Thus, the passengers who bought tickets in good faith get screwed while the investors who took the risk (and did very well in Canadian aviation stocks in recent years, thank you!) are protected.
RetirEd

November 9, 2020
1:57 pm
savemoresaveoften
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BNS letting Tangerine fails and govt not stepping in can only happen if there is a systematic failure in the financial sector. BCE development and Trust that went belly up in the past are not apple to apple comparison in my mind.

On the other hand, if Tangerine is involved in high leverage trading or a primary lender of second / third mortgage, then yes I will be a lot more concerned and think of Tangerine as pure arms length from BNS and for good reason.

I am comfortable going over the CDIC limit by a substantial margin at Simplii and Tangerine. Trusts and CU, up to the insurance limit is good enough. I dont have enough cash sitting around to worry about needing more names to spread the risk, anyway sf-cool

November 13, 2020
12:44 am
speedwagen
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rhvic's post is very appropriate in this current environment. I had that very same thought myself, despite having always being a CDIC stalwart, but I have to say that I came to the conclusion that it's not really worth sacrificing returns in order to safeguard a currency that's less secure* then the FI it's on loan to.

Having said that, I'm still willing to spread my eggs when warranted, including sacrificing small yield differentials, but my priorities have shifted towards yield over supposed safety.

I used to invest in hi yield bonds for the longest time, but the risk nowadays by far exceeds the rewards & investment grade bonds aren't even worth talking about, which brings us back to HISA's & GIC's.

*I'm of the belief that our currency isn't worth a whole lot, considering how ridiculously expensive everything's become. U$ isn't a whole lot better if at all & I think it has a lot to do with the fact that most western currencies are no longer back-stopped by gold reserves with the Chinese holding most of it.

I have to say that other than traditional value & somewhat rarity, although the rate of new discoveries with advancements in exploratory technology is astounding, gold has no real material value since it's only real use besides ornamental is it's the best conductor in the universe, but due to cost is rarely used, since copper is almost as effective @ a fraction of the cost...but I digress.

The only support our currencies have is based on creditworthyness & even that's debatable. I know this isn't what people want to hear, but I'd rather poke the white elephant than ignore it. Please feel free to weigh-in, as I'd be more than happy to change my mind.

July 19, 2021
5:43 am
Bobbyjet11
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I am contemplating exceeding the CDIC maximum in a Canadian Tire high-interest savings account. I reckon CT is pretty stable. Any thoughts?

July 19, 2021
6:34 am
canadian.100
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Bobbyjet11 said
I am contemplating exceeding the CDIC maximum in a Canadian Tire high-interest savings account. I reckon CT is pretty stable. Any thoughts?  

I would think CT is stable - Bank of Nova Scotia has an ownership interest in CT - however it depends on by how much you would exceed the CDIC limit at CT. I would not worry about exceeding by a few thousand $ but I would not exceed CDIC limit @CT say by 100K - which would mean a 200K balance in a CT HISA.

July 19, 2021
7:14 am
Alexandre
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Bobbyjet11 said
I am contemplating exceeding the CDIC maximum in a Canadian Tire high-interest savings account. I reckon CT is pretty stable. Any thoughts?  

Now that CT Savings account rate is 1.25%, there are 7 FIs in HISA chart offering same rate. Makes more sense to spread money between those, without exceeding CDIC maximum.

July 19, 2021
7:43 am
Bobbyjet11
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Alexandre said

Now that CT Savings account rate is 1.25%, there are 7 FIs in HISA chart offering same rate. Makes more sense to spread money between those, without exceeding CDIC maximum.  

It is??... been lackadaisical lately when checking but last I checked the CT savings interest was 1.55%. Will check again - thanks for the heads up.

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