Of Eggs & Baskets
Posted by Gail | Filed under In the News, When Ca-Ca Happens
With the failure of hundreds of banks in the U.S. there are more than a few people wondering if something similar could happen in Canada. The last time a financial institution failed in Canada was in 1996 when Security Home Mortgage Corporation when down. In 1993, three trust companies went belly up. In all, there were 18 failures in Canada in the 90s, and 23 failures in the 80s, so failure isn’t unheard of. Banks, of course, aren’t the only institutions that we trust with our money. Happily there are a bunch of safety nets in place to protect us.
Savings and chequing accounts. If you hold your money with a Canadian financial institution that is a member of the Canada Deposit Insurance Corp. (CDIC), you’re covered for up to $100,000. Foreign banks with branches in Canada may also be members of CDIC and if they are you are covered. If not, you’re SOL, so check here before you put your money on deposit.
GICs and term deposits are covered too, as long as the term of the deposit is five years or less. The $100,000 limit is for all your non-registered accounts with a single bank. So if you have $80,000 in a savings account and another $80,000 in a chequing account, you are covered for only $100,000 — not the $160,000 total.
Joint accounts are covered separately so if you have $100K in your savings and chequing accounts and then open up a joint account with your son, partner or best-friend, the joint account is covered for another $100K.
TFSAs are also covered separately, but only for those products that are CDIC insurable like savings accounts and GIC with terms of 5 years or less. Investments like mutual funds would not be covered by CDIC.
RRSPs and RRIFs are also covered separately so you can have $100,000 in GICs or savings accounts (but not in mutual funds, stocks, or other investments ineligible for CDIC coverage) and yet another $100,000 in RRIF accounts. While RRSPs and RRIFs are specifically named in the legislation…
RESPs are not. However, since The Act does cover eligible deposits held by the trustee of a trust for another person as long as the trust disclosure rules are met, an RESP structured as a trust may qualify for separate coverage. You should check with your RESP provider for clarification.
If you have a life insurance policy with a Canadian insurance company, your benefits are protected by Assuris, (www.assuris.ca) which is a not- for-profit organization funded by the life insurance industry. Deposits are covered for up to $100,000.
Stocks, Bonds, Mutual Funds and the like may be covered under the Canadian Investor Protection Fund, which will cover you for up to $1 million in cash and securities, provided the dealer is a member of the Investment Industry Regulatory Organization of Canada. (www.cipf.ca.)
If you’re a member of a defined benefit pension plan and your company goes bankrupt, you may have reason to worry. Most pension plans come under provincial jurisdiction and provinces vary widely on their rules. If your pension plan is underfunded, your monthly payments may be less than anticipated. Ontario is the only province to insure the pensions of bankrupt companies through its Pension Benefits Guarantee Fund (PBGF), which backstops the first $1,000 per month in pension benefits per plan member if a company goes bust.
December 17, 2009 at 9:20 am
what if the company is a federally regulated company, which provinces rules are followed for a Defined benefit pension plan? Nortel would be one that I’m wondering about. While I’m not a nortel employee I know lots of people who are and it would seem that they are SOL.
great post on the vartious forms of coverage there are Gail.
Regards,
Jason
December 17, 2009 at 9:22 am
Thanks for this information! I knew about the $100K coverage, but didn’t realize TFSAs and GICs would also be covered outside of the 100K at a financial institution.
December 17, 2009 at 9:31 am
One of the girls I work with has a husband who works at Maple Leaf. It would appear that once again, the pension funds have been mismanaged/gambled/poorly invested (I don’t know enough to know which) and their pension is gone. poof. nada. 20 plus years there and zero pension. Just doesn’t seem right.
December 17, 2009 at 9:33 am
Great information that I never knew. Thanks, Gail
December 17, 2009 at 9:47 am
This stuff can be a bit confusing, but this is a good reminder for me to take a look at our situation again. For now, things have settled down a little in the financial world, but there is a good chance we’ll face more trouble down the road. The boy scout rule (be prepared) is in effect here. Thanks Gail!
December 17, 2009 at 9:54 am
Good to know, thanks Gail!
December 17, 2009 at 10:19 am
Another setup that we have in our province MB is the “Credit Union Deposit Guarantee Corporation”. It also covers your deposit. It is separate from the CDIC.
This the excerpt from their site – http://www.cudgc.com/faqs.html
Is this guarantee the same as the banks’ $100,000 insurance?
This guarantee is different than the banks’ insurance. All deposit amounts are fully guaranteed and include accrued interest to the date of payout. Deposit amounts include chequing and savings accounts, RRSP deposits, RRIF deposits, foreign currency deposits and term deposits, including those with terms exceeding five years. For information respecting the guarantee of deposits in banks, refer to Canada Deposit Insurance Corporation.
This covers the money you put into a credit union. It seems to be more comprehensive than the CDIC.
December 17, 2009 at 10:39 am
Not sure about other provinces, but I know in Manitoba, Credit Union deposits of any kind are guaranteed Without Limit…and they usually have waayyy better rates than Chartered Banks, even beat Pres Choice and ING. I love dealing at local CU’s.
December 17, 2009 at 10:40 am
On the CIPF protection for stocks, bonds and mutual funds, some of your readers may misinterpret the nature of the protection. Investments are not protected from dropping in value in the markets. Investors are protected if their shares or units disappear due to fraud or insolvency of the investment company or bank. But, if your mutual fund drops to half its value because the stock market is tanking, you’re not protected. I’m sure Gail knows this, but I find that some people are confused about CIPF protection.
December 17, 2009 at 11:07 am
Wow, that’s good to know!! I was particularly interested in the last bit about pensions. I’ll be starting contributing to my pension in October, 2010 (yah, only 11 more months) – and I’ll sure be looking into Alberta’s rules going forward!
December 17, 2009 at 1:06 pm
Wow what an eye opener! What I thought I knew about this was way off. I wonder how many people actually know the truth about this – probably very few. Thanks Gail for putting it here clear and thorough.
December 17, 2009 at 2:07 pm
Neither my husband nor I have pension plans through work. It’s all up to us and we have been conscious of that when putting money in our RRSPs and TFSAs. We both know people who have lost their entire pension through companies going under. My teacher friends here in Alberta have an underfunded pension which they must contribute to ( union rules) but it may or may not be available to them upon retirement. Unfortunately- none of my teacher friends are making alternate savings to cushion the just in case.
December 17, 2009 at 3:00 pm
Thanks for this info, Gail. I’ve just added another “to do” item for my and hubby over Xmas break. We’re big fans of CYA.
December 17, 2009 at 7:25 pm
Good info to know on today’s blog.
Guess what ? I just received Gail’s new book today from Amazon.ca and I am pumped to start reading it. I’m already starting on the ‘homework’ she gives at the beginning and am looking forward finally getting a handle on my finances in 2010 !!
Wishing everyone a healthy and happy holiday as you share with family and friends !
December 17, 2009 at 8:21 pm
As someone who works in a bank, you can hold over $100K in your savings and also in your chequing account and in GICs registered and non-registered. It also depends on if an account is joint as well. Each can be separate entities and most of the CDIC insured banks have more than one company under the umbrella of their bank name. So if you have that kind of cash ask your banker, they have options that keep you covered under CDIC but also let you have everything at one bank too!
December 28, 2009 at 4:32 am
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December 28, 2009 at 7:35 am
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