There’s one surefire way to protect your clients’ money from another financial meltdown: put it in a CDIC-insured account.

On June 4, 1996, Security Home Mortgage Corporation, a Calgary-based company that borrowed money from individuals to help fund mortgages, went bankrupt, putting $42 million in account deposits at risk. The financial institution’s nearly 2,600 clients were, of course, concerned that their money would be gone for good.

What people soon learned, though, was that the company was a member of the Canada Deposit Insurance Corporation (CDIC), a Crown corporation that protects deposits. CDIC members include banks, federally regulated credit unions as well as loan and trust companies. Within three weeks, Security Home Mortgage clients had their insured deposits restored.

The CDIC has been protecting people’s assets since 1967, when Prime Minister Lester B. Pearson’s government created the corporation after a series of bank failures. Since then, 43 institutions have folded — Security Home Mortgage Corporation was the last to fail — yet not a single Canadian has lost money on insured assets. “No one in the history of the CDIC has ever lost a single dollar of insured deposits,” says Brad Evenson, the organization’s Director of Communications and Public Affairs.

What’s protected?

Canadians likely have some knowledge of the CDIC. They know it protects deposits of up to $100,000, but what exactly does that mean? Evenson explains that the corporation protects cash in chequing and savings accounts. It also insures certain deposits made in joint accounts, registered accounts and trusts. Guaranteed Investment Certificates (GICs) are covered, but mutual funds, stocks and bonds are not. Those assets may be insured by other organizations, he says.

More than $100,000 of protection

What many people don’t realize is that the CDIC can actually cover more than $100,000 of a person’s deposits. Every deposit is treated separately, says Evenson, meaning that it’s not $100,000 of a person’s total assets, but it’s up to that amount in each insured category. “The CDIC can cover much more than it may seem,” he says. “You just need to know how to maximize your coverage.” For example, $50,000 in GICs in a TFSA, $100,000 in a savings account, and another $75,000 in an RRSP would all be covered within the same institution.

Bankruptcy versus fraud

Canada’s banks fared better than those in other developed nations during the 2008–2009 recession, but if one did have to shut its doors now, those deposits would be covered. However, if someone committed a fraud — say a teller stole a customer’s money — that wouldn’t be covered by the CDIC. That would be handled by other authorities.

It’s important to understand this distinction, says Evenson. If people know their money is safe, even if the institution appears to be failing, they won’t rush to the bank to withdraw their money. “Bank runs can destroy the viability of a bank. If people know their deposits are safe, then that bank can be viable for longer,” he explains.

Fitting in with financial planning

Understanding what the corporation covers can be useful when creating a client’s financial plan. For instance, retirees typically want to protect their capital, since they’re starting to use the money they’ve invested and saved. By putting some of those funds into CDIC-protected accounts and deposits, that money will always be safe. “This is useful for those interested in protecting the savings they’ve already built up,” says Evenson.

In our up-and-down market environment, clients need to know their money can be protected and advisors need to understand that the CDIC can offer their clients peace of mind. Having that conversation can help build trust and lets clients sleep better at night.

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