More Money Podcast - What Is CDIC & How Does It Work? - Money Minute with Jessica Moorhouse

Episode Date: February 28, 2020

Do you know what the Canada Deposit Insurance Corporation (CDIC) is, or why it was created? I go through the history, how it protects banking customers and their deposits, and how exactly (and how much) you’re protected. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, hello, hello, and welcome back to another Money Minute with Jessica Morehouse. For this episode, I wanted to talk more specifically about something I mentioned briefly in last week's Money Minute. I talked about how Wealthsimple was not CDIC insured, and I'm like, hmm, maybe some people don't even know what the hell CDIC is, so I should probably do Money Minute on that. So CDIC stands for the Canada Deposit Insurance Corporation, and I'm going to share three important things that you need to know. So why was CDIC created? CDIC was created as an independent crown corporation in 1967 as a call to action by Parliament

after previous years of turmoil within the financial industry. What triggered CDIC's creation was the failure of two financial companies, one after the other. First, there was the foreclosure of the Atlantic Acceptance Corporation in 1965, and then there was the failure of Prudential Finance in 1966. During this time of crisis, the government realized they needed to step in and do something. So CDIC was created to protect eligible deposits in member financial institutions in the case of a failure. In 2011, CDIC was created to protect eligible deposits in member financial institutions in the case of a failure. In 2011, CDIC became Canada's resolution authority. This means that they have tools to support the resolution of all banks, big and small. Even though CDIC exists to protect us

and our savings, you may still be wondering why people think you can still lose your savings if your bank goes under. So before CDIC, if a bank failed, and that means went bankrupt, you were at risk of losing your money. This was a reality for probably your grandparents, and they may have even experienced it. And then that experience and that knowledge may have been passed down to you or to your parents. And maybe that is why this kind of idea that, oh, you may lose your money at the bank is still around. I don't know. So for example, let's talk about one of the biggest bank failures in Canadian history. The home bank of Canada collapsed in 1923. Remember that classic scene in It's a Wonderful Life when there's a bank run on Bailey Brothers building and loan.

Oh, I love that movie. Anyone, anyone else? Okay. Anyways. Um, and George is forced to use his honeymoon money to keep it solvent. Well, that same hysteria happened in 1923 when the home bank of Canada shut his doors to customers all over the country due to financial mismanagement, bad investments, and not being able to pay off its debts. In short, the bank collapsed and more than 60,000 customers lost all of their savings held with them. Crazy. Now, that bank failure was almost 100 years ago, but there have been many bank failures since then. Since 1970, there have been 43 bank failures, including Fidelity Trust Company in 1983, Western Capital Trust Company in 1985, Bank of Credit and Commerce Canada in 1991, Security Home Mortgage Corporation in 1996. But since CDIC was created in 1967,

guess how much money customers have lost from their banks after they collapsed? Not a dollar. That is right. Since CDIC's inception, they've protected more than 2 million people holding $26 billion in insured deposits at these failed institutions. So not one person lost a single dollar thanks to CDIC deposit insurance. Woo-hoo! From the director of The Greatest Showman comes the most original musical ever.

I want to prove I can make it. Prove to who? Everyone. So, the story starts. Better Man. Now playing in select theaters. Now, last thing you need to know is how does CDIC work? First thing you need to know is CDIC deposit insurance is free and automatic, but your financial institution must be a member of CDIC. You see, CDIC deposit insurance is free for you as the consumer, but not for your bank or federal

credit union. As members, they need to pay for that insurance, but in the end, it's in their best interest to do so. All you have to do as a consumer is to ensure that you're protected by CDIC deposit insurance, which just means you have to make sure that the bank that you're banking at is a member of CDIC. Easiest way to do that is go to your bank's website and make sure they have the CDIC member logo in the footer of their website. So just a few more important things you need to know about CDIC deposit insurance. It does not cover investment. So if you lose some money in your investment portfolio because you held a stock and that company totally went bust, yeah, it's not going to help you. That's not what CDIC is all about. CDIC is meant to protect your cash

or term deposit savings, not your investment. So that means it will cover, you know, savings accounts, checking accounts, GICs that mature within five years or less, money orders, bank drafts, checks certified by your bank, all that kind of stuff. If you have a seven-year GIC, also that will not be covered by CDIC as well. And even though I mentioned that since CDIC started, not one person has lost a single dollar from a member institution in a bank failure, that doesn't mean all of your money is totally protected. There are limits around how much they can protect. So this is very important that you understand how this all works. So CDIC ensures eligible deposits at its

member institutions up to a maximum of $100,000. That's principal and any interest earned combined per depositor per insured category per institution. So first things first, let's break down the seven different categories. There's deposits held in one name, held in more than one name, held in an RRSP, held in an RRIF, held in a TFSA, held in a trust, and held for paying taxes on a mortgaged property. Now that we know the different categories, it's important to know that CDIC protects your deposits up to $100,000 in each category at the same institution, except trusts. They are insured up to $100,000 per beneficiary. In other words, if you had $100,000 in a personal savings account and $100,000 in a joint savings account,

both at the same bank, your entire $200,000 would be protected. But anything above the $100,000 in that category would not be protected, in which case it would be wise to move those deposits to either another category or another financial institution so it is protected. Okay, we made it. We did it. There's a lot of information to learn. If you want to learn more, because maybe you're really into all of this and you're like, this is cool, go to cdic.ca. Again, this ain't sponsored, but a while ago, I did a lot of research about CDIC. So I'm like, might as well share it on a money minute episode. So I hope you enjoyed it. Let me know what you want me to do a future episode about. Happy to take requests because, you know, it's a lot of work to think, sometimes be creative.

So a little help goes a long way for me um so hope you enjoyed this money minute i'll be back uh on wednesday with another interview and i just wish you have an amazing weekend i'll see you here real soon later This podcast is distributed by the Women in Media Podcast Network. Find out more at womeninmedia.network.