How CDIC Protects the Deposits of Canadians, with Peter Routledge
Welcome to The MapleMoney Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of MapleMoney, where I’ve been writing about all things related to personal finance since 2009.
Canadians want to know that the money they have on deposit with their bank is safe, especially during times of economic uncertainty. Thankfully, the money in your chequing or savings account is protected with something called CDIC insurance, providing that you bank with a CDIC member institution.
Given the financial uncertainty, many Canadians are facing at the moment, I felt it was the perfect time to have this week’s guest join the show. Peter Routledge is the CEO of Canada Deposit Insurance Corporation, or CDIC. Peter joins me to explain exactly how his organization protects Canadians, and reassures us that CDIC will be there when we need them. He also shares some recent enhancements to CDIC coverage, to ensure that you are fully informed.
Did you know? CDIC counts 86 member institutions and since 1967, has encountered 43 failures of its members, resulting in payment claims to over 2 million Canadians. Thankfully, no Canadian has lost a dollar on a CDIC protected deposit. Peter explains that CDIC coverage is free for Canadians. Instead, premiums are charged to member institutions, as a percentage of deposits protected. Financial institutions deemed to be the lowest risk pay the lowest fees.
Currently, CDIC covers eligible deposits up to $100,000 across no fewer than 7 categories. In addition to your plain old chequing or savings account, eligible RRSP and TFSA deposits are also covered. Peter shares some tips on how you can increase the amount of CDIC coverage you have. Remember, not all investments are protected by CDIC. For example, securities such as stocks, bonds, ETFs, or mutual funds are not included.
Peter and I discuss some recent enhancements to CDIC coverage. For example, deposits held in a foreign currency, such as a US dollar chequing account or GIC, are now covered, up to $100,000. According to Peter, Canadians can expect further enhancements to CDIC coverage in 2021. For a hint as to what’s coming, you have to listen in to this week’s episode of The MapleMoney Show!
Do you bank with a member of CDIC? If so, your eligible deposits with that institution will be protected up to $100,000 in each of their coverage categories, in the event of a bank failure. Didn’t know that banks could fail? CDIC has handled the failure of 43 of its member institutions since it was established in 1967. Guess how many people lost their protected deposits during those failures? Zero. Not a single dollar under CDIC protection was lost. Find out more about CDIC coverage and check to see if you bank with one of its member institutions by visiting CDIC.
- What does CDIC stand for?
- How the CDIC protects Canadians
- CDIC has paid out claims to 2.1 million Canadians in its history
- The last member failure was in 1996
- Breaking down the fees paid by member institutions to CDIC
- More than one way to protect deposits
- Account types covered by CDIC
- Changes to CDIC coverage in 2020
Canadians want to know that the money they have on deposit with their bank is safe, especially during difficult economic times. Thankfully, the money in your checking or savings account is protected with something called CDIC insurance, providing that you bank with the CDIC member institution. Given the economic uncertainty we’re facing right now, I thought would be the perfect time to have this week’s guest join the show. Peter Routledge is the CEO of Canada Deposit Insurance Corporation or CDIC. Peter joins me to explain exactly how his organization protects Canadians and reassures us that the CDIC will be there when we need them.
Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Do you bank with a member of CDIC? If so, your eligible deposits with the institution will be protected up to $100,000 in each of their coverage categories in the event of a bank failure. Did you know that banks could fail? The CDIC has handled the failure of 43 of its member institutions since it was established in 1967. Guess how many people lost a protected deposit during those failures? Zero. Not a single dollar under CDIC protection was lost. Find out more about CDIC coverage and check to see if you bank with one of its member institutions by visiting CDIC.ca. Now, let’s chat with Peter…
Tom: Hi, Peter, welcome to the Maple Money Show.
Peter: Thanks very much. Great to be here.
Tom: First of all, a bit of a disclosure. CDIC has been sponsoring some podcast episodes, but you being on here is not paid. This was me being interested in having you on the show. As I was working with CDIC, I realized this is something that you can speak to better than anyone else. And I don’t think that a lot of people realize what the CDIC is and what they do so I just kind of want to walk through all of that with you.
Peter: Thanks, Tom. We appreciate it. And I’m glad you’re being transparent about that. I appreciate the chance to be here.
Tom: Thank you. Just to really jump right into it, what is the CDIC?
Peter: CDIC stands for Candidate Deposit Insurance Corporation. We were founded in 1967 and our job is to protect the deposits of Canadians. It’s an insurance policy Canadians have if they make deposits at any of our member institutions. And there are roughly 86 of them across Canada. You have the insurance when you make deposits. You don’t have to sign up for anything. It’s already in place. In very, very, very unusual and rare circumstances where a member fails, you don’t have to call us, we try and find you. You’re welcome to call us but we’ll burden ourselves with the responsibility of finding you.
Tom: Well, this is not something that I think about much. If I’m signing up for a bank account, I don’t go out of my way to check to see if it has CDIC. Chances are it probably does. If people don’t realize this is in place or that it is of concern, is this something that’s happened in the past? Has a member institution just disappeared?
Peter: Yes, in our history there have been 43 failures of our members going back to 1967. We’ve provided benefit payments or claims payments on insured deposits to about 2.1 million Canadians. The reason you haven’t heard of us is because we don’t “trip off the tongue” like other large financial services institutions and we haven’t had a failure since 1996. So we’re going on a quarter century. To give you an example about the last one that did fail in 1996, it was called the Security Home Mortgage Corporation based in Calgary. At the time they had about 42 million bank deposits that weren’t insured. Once we got official word from the superintendent that the institution was not viable, he sort of snapped into gear and began writing checks to about 2,600 Canadians. So we went into the institution’s books and records, found out the names and addresses of folks and ran authentication checks to the extent we could. We made sure we had the most current and up-to-date names and addresses and then sent out the checks. In our history there have only been 43 member failures in 52 years. No Canadian has ever lost a dollar on a deposit insured by CDIC. We were there when you needed it. It’s just that you haven’t needed it for 25 years.
Tom: That’s good to hear, obviously, being around 50 plus years. There was quite a bit of failure in the first half, but nothing lately. As someone that just signs up for a bank account where it’s already in there, are we paying fees or does the bank pay fees? How does how does this work? How is this supported?
Peter: You don’t pay fees. The bank pays fees. We annually go out and work with our member institutions to figure out the amount of deposits that are insured with those member institutions then we charge those institutions a fee. And it’s anywhere from 7.5 basis points to 33 basis points. One basis point is one 1/100 of one percent. For example, if you are receiving interest on a GIC of 1.5 percent, that’s 150 basis points. Assuming it was a low risk institution, it would pay CDIC about 7.5 basis points. So our load on this system is fairly small. That’s because we insure so many deposits and we don’t have to put a high load on the system in order to generate the revenues we need to keep our plan funded.
Tom: Insurance is in the title of CDIC. Is it traditional insurance? Does it act the same?
Peter: It is traditional insurance under the CDIC Act. If your member institution fails, the superintendent declares it non-viable. Then we, with the superintendent, decide to put it into liquidation and pay out. There is a whole legal process built up to support that. That very day we start paying out deposits at 100 cents on the dollar. In that sense, when disaster happens, the insurance company will step up and make a claim payment. The other part of that question is, when an institution fails, does the CDIC always do a payout in a liquidation? The answer is, not always. We may choose to protect or insure your deposits by helping to facilitate the sale of a failed member institution to a healthy member institution. That’s another way we can do it. We make decisions on that by trying to figure out what the least cost and most effective way is of providing that deposit protection or deposit insurance. For example, we’ve had a number of members in the 90s—trust companies who became non-viable but there was a willing buyer that was another CDIC insured, healthy, member institution. We helped facilitate the sale and those depositors just simply had their deposits reappear at the new institution. Everything we do is designed to lower our costs.
Tom: So in a case where it goes to another institution, is the value still the same? This isn’t sort of like swapping credit between companies where you’re buying it for pennies on the dollar. If someone has $50,000 saved up and it goes to another institution, it’s still $50,000?
Peter: Yeah, it would happen by law, but we would insure anyway that if you have $50,000, that a member institution that is non-viable and gets transferred to a healthy institution, you have a $50,000 plan at the healthy institution. There is no other option. And by the way, accrued interest would also apply. You suffer no economic hardship as a consequence of your member institution becoming non-viable. And that applies whether we do a transaction or whether we do a liquidation payout.
Tom: So I might be setting you up for a big answer here, but what all is covered by CDIC? What kind of accounts are we talking about?
Peter: We cover by institution. If you have two bank accounts at two institutions, they’re looked at separately. We cover up to $100,000 across seven categories. So your basic savings deposit, trust accounts would be insured separately from basic savings deposits. RRSPs, RRIFs, mortgage tax accounts, TFSA are all accounted for separately. So if you have $100,000 in an RRSP, $100,000 in a TFSA and $100,000 in a savings account at the same institution, your coverage is $300,000. Now, let’s say instead of putting it into an RRSP and a TFSA, and you decide to put it all $300,000 in a single savings account at a single institution under a single name, you’re only covered up to a $100,000 in that case. You’ll find our members will do that; they’ll work with their clients and do things like, “Okay, you’ve got $80,000 in this account in your name. You have another $80,000 and you want to buy a GIC. But if you do that, you’re not going to get that fully covered so what if we open a joint account with a CDIC partner where we will cover that joint account separately? That way you have full coverage.” What we’ve found is that between our design, the legislative system and the behavior of our members who pay fairly close attention to our rules, we cover 98 percent of Canadians in full. So 98 percent of Canadians have their savings covered in full as their savings are scattered across our categories and across different account types.
Tom: That’s interesting. There are a couple of things I was thinking of there. So it’s one member institution but seven different categories. So you can keep everything within those buckets. But say someone has got a lot of money they want to hold in a savings account, do you see that people will open up a different bank accounts with a different member if they’re in that kind of situation? Maybe they want to have the money in a similar type of account.
Peter: Well, a good example of that would be a retiree who has a portion of the portfolio where they just want to earn risk-free and relatively low interest rates on and they have more than $100,000. They may choose just to do a few GICs at separate institutions. Say they had $300,000. They would put $100,000 in institution A. Institution B would have another $100,000 and another $100,000 would be at institution C. Another alternative would be with their partner or their children. You could do $100,000 in your own name, $100,000 in you and your partner’s name and $100,000 in a child’s name. It’s just a personal choice. And our strategy is to maximize flexibility and alternatives with the goal being to cover as high a percentage of Canadians 100 percent in full. Another thing it does is to allow us to sort of maintain our taxpayer’s aggregate liability at a manageable level. That’s the other important thing about CDIC. We are an agent of the Crown. So we are a corporation that’s also part of the government and our obligations are those of the Sovereign. It won’t happen but say your institution becomes non-viable and for whatever reason CDIC isn’t there or doesn’t have the cash on hand to pay your claim, you have a direct claim on the consolidated revenue fund of Canada. And there’s no difference. We’re just that legal entity that fulfills the promise Parliament has made to Canadians.
Tom: So it’s not a question like with regular insurance companies where they have the money to make these payments. Ultimately, it can come from the government if needed?
Peter: Yes. And there’s a legislative design in place within our Act to make that happen. What can happen with some insurance companies is the early claimants get their claim paid and then something happens where there is no solvency left in the institution and other folks may not get their full claim paid. In our case, because we’re an agent of the Crown, we’re pretty much money good.
Tom: Yeah. Yeah, that’s a good point. If a regular business goes bankrupt, people that are owed money from that business do have to kind of get in line and see who gets priority and all that. So this isn’t the case with regular people at a regular member institution. So it sounds good. One more question. There is this $100,000 limit. There are certainly a lot of ways to make that not really matter. Technically, you can have different names and different categories and stuff. You can have quite a bit of money even in the same institution, but why is there a $100,000 limit?
Peter: I think, philosophically, throughout our history, the governments that have amended our legislation have adopted the strategy of, “Let’s cover as many Canadian as possible up to 100 percent so they’re fully covered. But let’s not overextend the ultimate liability to the taxpayer.” So it’s basically a philosophy of optimizing the benefits of deposit insurance given the costs to taxpayers. That’s the guiding principle in the philosophy behind it. Back in 2006, the government went from $60,000 to $100,000. So there was a review. The most recent reviews were completed a couple of years ago and certain features of the amendments to our Act are coming into force or just came into force recently. But when we went through that review, Parliament asked the question specifically of whether we should we raise the limit or expand our categories? And the answer that came back was, “We will better serve Canadian depositors if we expand the categories and leave the limit in place while simultaneously minimizing the cost to the Canadian taxpayer.” So it was that same sort of optimization philosophy.
Tom: I’ve got to agree with the idea of increased categories because, if I have two different types of accounts, I’d rather have both insured than one insured for more and the other not insured at all. So that definitely makes sense.
Peter: And that’s sort of the philosophy in it. The basic strategy has held firm at multiple checkpoints throughout CDICs history. Those checkpoints—the Parliament oversees it and makes a call on the basis of sound analysis.
Tom: So what isn’t covered? I assume something like stock investing isn’t covered. Is it those types of accounts—true investments?
Peter: Anything that’s not a bank deposit isn’t covered. If you have an ETF or mutual fund, they’re not covered. If you have Canada Savings Bonds, CIDC doesn’t insure those. Although, you have the same risk, it’s the promise from the government that it will reimburse you for that claim. So anything that ventures outside that deposit product category. When we talk to Canadians, people generally understand that. We occasionally get the question, “I have all these investment products in my brokerage account. Do you cover mutual funds?” No. “Do you cover bond holdings?” No. “I have GICs so I guess you don’t cover those either?” The answer is, actually, we do cover GICs. If you have a brokerage account and GICs from a CDIC member, if it’s under $100,000, we cover it.
Tom: Now, I know just last week you released some new changes. Can you tell us what those changes are?
Peter: Last week there were two major ones that came into force. Again, this generally goes to expanding coverage within the $100,000 per category limit. We expanded our coverage to include foreign currencies. For example, say you have a savings account of $10,000 in Canadian currency at your bank and you also have another $10,000 in U.S. currency at your bank. Before last week, the U.S. dollar account was not insured. Today it is insured. Now, the $100,000 limit doesn’t change. And we do currency adjustments to the value of the U.S. dollar account to Canadian dollars, but it does expand the amount of deposits we cover within those categories. The second thing we did is expanded the coverage of eligible deposits to terms of greater than five years. So if our members decide to offer a 10 year guaranteed investment certificate this week, we will insure that, whereas a week ago we would not.
Tom: That’s an interesting one. GICs longer than five years will be insured so I assume that’s going to have the banks then release these options. I know you can’t speak for them, but I assume there’s going to be chances here for people to probably get better rates because of that longer locked in term. It could be pretty interesting.
Peter: The banks will have an opportunity to issue products like GIC products for 10 years. And in normal interest rate environments, yeah, you would probably see them offer higher returns with the proviso you’re locking in that money for 10 years. There are product innovations where after a certain time GICs could be made cashable. That decision is up to our members. It doesn’t affect insurance so you could see other product innovation there. What we’ve seen so far very quickly is some of our members are expanding their product line to include and remind Canadians that they can have foreign currency accounts that are insured. I’m already seeing some advertising out there in the market for that.
Tom: Okay. And you had a third thing before I cut in on the GICs.
Peter: The third one is what I call legislative hygiene. We’ve eliminated coverage for traveler’s checks. We did that because traveler’s checks are no longer issued by our member institutions. Good legislative hygiene.
Tom: Part of that makes me sad remembering as a child when my parents would get the traveler’s checks before we’d head down to the U.S. But they don’t seem much needed now.
Peter: Yes, debit cards have filled the need. I remember traveling through Europe on traveler’s checks. That probably dates me but, there you go.
Tom: I should point out that the foreign currency one is interesting as well too, because again, I’d rather have that extra coverage there than have the amount of my Canadian savings increase. You said you’ve already seen banks advertising this now? They’re starting to push the foreign accounts?
Peter: Yes. And I expect you’ll see quite a bit more of that over the next year. The intent of it was to just simply expand the waterfront of coverage without putting too much of an increased liability on the taxpayer.
Tom: And there are still more changes coming down that are happening in the future?
Peter: In about a year. So April 30, 2021, we’re going to add two categories to our coverage. And the first one is we’ll cover our RESP (Registered Education Savings Plans) up to $100,000. So that’s a new category and a new $100,000 limit. You add that to the bookshelf of coverage. It’s the same thing for Registered Disability Savings Plans—RDSPs. That’s us expanding our coverage universe to provide coverage to more Canadians. And then we are eliminating one category and that category is called, mortgage tax accounts. That harkens back to the days when banks would accumulate municipal taxes in separate accounts and people would pay their municipal taxes from those accounts. That doesn’t really happen much anymore. The advent is different payment methods so that’s just not a product category that’s used. Again, good hygiene is to remove that. Now, if you do have a mortgage tax account, it would still fall within the normal savings and demand account category so you wouldn’t necessarily lose the coverage on April 30, 2021.
Tom: There is something I just thought of just to be clear to everyone. Something like an RRSP or TFSA, when you say those, they’re a different category but you still mean deposit accounts. Because, obviously, you can open a stock brokerage account within these but is still about deposits. You’re just giving an extra category.
Peter: Yeah. Yeah. Thank you for clarifying that. If you have an RRSP and you have $100,000 in a GIC, we cover that. We don’t cover the other $90,000 in mutual funds and ETFs, for example.
Tom: So no one gets too excited that these things are covered and full. It’s still about deposits; you’re just giving an array of options here on where they stash that within their $100,000 limits.
Tom: Is there anything else you feel we haven’t covered here? Is there anything I’m missing about CDIC?
Peter: This harkens back to your first question which is we’re not a financial services brand that has an awareness level equivalent to some of the members that we insure. And that’s something we’re working on while also trying to remain cost conscious. Do you have CDIC insurance at the institution where you bank? There’s an easy way to figure out. By law, those institutions have to have our little purple lock logo on their branch front doors and on their internet sites. It should be fairly easy and straightforward to search your bank internet site or to wander by your local branch and if you see a purple lock with the Canadian maple leaf in the middle, you’re covered. You’re covered by CDIC.
Tom: And I know there’s also a list of member institutions on the site so we’ll make sure we link to those from the show notes. If anyone is questioning it—maybe the sticker is not up on the branch, then they can certainly check there.
Peter: If they find a sticker is not up on their branch and they know the branch is insured, you’re welcome to send us an email, log on or visit the center website and let us know. We do try and stay vigilant on that.
Tom: Well, it’s been great. I think we’ve covered all the things CDIC. And these are exciting new changes that have happened this past week and coming in the next year. I hope people feel a little more confident in their investments. I know it’s been a strange time lately so it’s nice to know if you’re worried about where you’re saving your money, that you’ve got a locked in GIC and worried about if the bank fails, at least they know this kind of coverage is in place.
Peter: I want to reassure your audience that we’re here. We’re on it and we have the resources on hand, ready to go, to ensure you have consistent, uninterrupted access to your deposits.
Tom: Great. Well, thanks for being on the show. Can you let us know where people can find you online such as the website? Do you have social media accounts?
Peter: Yes. Our website is cdic.ca. It’s got a lot of great information. We’ve tried to make it as user friendly as possible. So it’s cdic.ca. You can visit there. We have a CIDC Twitter handle @ CIDC. And then I have a Twitter handle as well. Just search for Peter Routledge or CDICprez and you should find us on Twitter as well.
Tom: Perfect, thanks for being on the show.
Peter: All right, thank you, Tom.
Thank you, Peter, for explaining exactly how CDIC insurance works and also for reassuring our listeners that the qualifying deposits are fully protected. You can find the show notes for this episode at maplemoney.com/peterroutledge or check out all the past episodes at maplemoney.com/show. This week we’re opening up the vault and releasing a past interview on YouTube every weekday. If you want to join me and past guests in video format, head over to maplemoney.com/youtube and subscribe to the channel. Thank you for listening. I hope everyone out there staying safe. I’ll see you back here next week.