S ince the inception of this blog, Ive received numerous emails from readers asking where to put larger deposits.  Most know about CDIC (Canada Deposit Insurance Corporation) and how it protects most accounts up to $100,000, but what about amounts greater than $100,000?  What do you do then?  What exactly happens to your money if a bank or brokerage goes bankrupt?

Since I havent written about them yet, lets take a look at the two major account insurances in Canada, CDIC and CPIF.

Canada Deposit Insurance Corporation (CDIC)

CDIC insurance insures bank accounts up to $100,000 in the case that the institution declares bankruptcy.  This includes chequing accounts, savings accounts along with GICs and savings accounts held within an RRSP.

RRSP and savings accounts are considered separate, which results in more insurance coverage.  If you have a spouse, then joint accounts are considered separate from single accounts.  These accounts must be in Canadian dollars and held by a CDIC member institution.

An important caveat to note is that CDIC does not include accounts that hold stocks and mutual funds.

• $100k Non-RRSP savings account and $100k RRSP GIC: CDIC will cover $200k total .
• $60k RRSP savings account and $70k RRSP GIC: CDIC will cover $100k total .
• $100k Non-RRSP joint Savings Account, $100k Non-RRSP single savings account: CDIC will cover $200k total .

• Check out their calculator to run your particular situation.

Canadian Investor Protection Fund (CPIF)

Providing that your investment dealer is a CIPF member, CIPF protects your investment account, up to $1 million. in the case that your investment dealer becomes insolvent.  Most discount brokerages in Canada are covered by CIPF.  Heres a list of current CIPF Members .  Alternatively, you can go to your discount brokerages website and look for the CIPF logo.

Heres a fun fact from their website:

since its inception in 1969, there have been 17 Member insolvencies. All eligible customers have had their assets returned to them by CIPF. In total, CIPF has paid $36 million for net claims and expenses.

What if you have more than $1 million in your investment account?  Generally speaking, because of the way that they calculate the CIPF coverage, it would typically amount to more than $1 million in coverage should you need it.  More specifically, because they liquidate the brokerage assets first and only use CIPF money if there is a shortfall, the minimum amount that is insured is $1 million.  You can see their illustrated example here.

Their official website is a bit hard to understand with very little examples but they do have a laymens brochure which explains things well.  An easy way to understand it is that general accounts and separate accounts are covered for $1 million each .

General accounts include cash, margin, options and futures which are all added together and covered up to $1 million.  Separate accounts are a little more extensive, but for the typical Canadian would include retirement accounts like RRSPs, RRIFs, LIRAs which are again added together and covered for $1 million.

Final Thoughts

Even though Canadian banks and most brokerages are considered stable, knowing what would happen to your money in the case of bank/brokerage insolvency is essential.  For those of you who are more affluent, it may be worth including in your risk management plan to spread your money among multiple institutions.  This especially true if your account balances with a single institution are greater than whats protected.