What happens to your money in the days after a bank fails

Bank failures in Canada are rare enough that most people have never had to think about the mechanics. The arrangement that sits behind every chequing account, savings account and GIC at a Canadian bank is nonetheless worth understanding, because it has edges: a limit per category, a list of products it does not touch, and a different system altogether for most credit unions. Knowing where those edges are is the whole of the exercise.

$100,000, counted three ways

The Canada Deposit Insurance Corporation (CDIC) is a federal Crown corporation that insures eligible deposits at its member institutions, which include the banks, federally regulated credit unions and many trust and loan companies. The limit is $100,000 per depositor, per insured category, per member institution, and it includes both principal and accrued interest. Each of those three phrases carries weight.

Per category: deposits are grouped into nine categories, each insured separately up to $100,000. They are deposits held in one name; joint deposits; and deposits held inside an RRSP, a RRIF, a TFSA, an RDSP, an RESP, an FHSA, or in trust. A person with $100,000 in a savings account, $100,000 in a joint account with a spouse and $100,000 of GICs in a TFSA at the same bank is fully covered on all $300,000.

Per member institution: the limit resets at each member. Two banks, two limits. Be aware that some banks operate several brands under one membership, in which case the brands share a limit; the CDIC's member list shows trade names under their parent.

What counts as a deposit

Coverage applies to money held as a deposit: savings and chequing accounts, GICs and other term deposits, and deposits in foreign currency such as US dollars, whether the money arrived by payroll, Interac e-Transfer or cheque. It does not matter whether the account is registered or not; a GIC inside a TFSA is covered in the TFSA category, as described in our TFSA guide.

What is not covered is anything that is an investment rather than a deposit: mutual funds, stocks, bonds, exchange-traded funds and cryptocurrencies, including stablecoins. Nor does deposit insurance cover losses from fraud or theft; that is a matter between you and the institution. An RRSP that holds mutual funds is therefore not insured by CDIC at all, even though an RRSP holding a GIC at the same bank would be.

Illustrative. Applies CDIC's rule of $100,000 per insured category, per member institution, including interest. The uninsured $10,000 in the first row and the US-dollar account could be moved to a second member institution or into a category with room.

Automatic, free and without a claim

There is nothing to sign up for and nothing to pay; the CDIC is funded by premiums from its members. If a member fails, the CDIC first looks at resolution tools such as arranging a sale to a healthy institution, so that accounts simply carry on under a new name. Where it has to reimburse depositors directly, it does so automatically: depositors do not file a claim.

For non-registered deposits in one name or joint names, payment is by cheque sent by regular mail, with the CDIC saying cheques start going out in the days following the institution's closure, one letter and cheque per category. Registered deposits in an RRSP, RRIF, TFSA, RESP, RDSP or FHSA are handled differently: to avoid a taxable deregistration, they are transferred to a new institution offering the same kind of registered product, which the depositor chooses, and that takes longer than a cheque.

Deposit insurance is counted per category and per institution, which is why the same $100,000 can be fully covered in one arrangement and only partly covered in another.

Credit unions are a different system

Most credit unions and caisses populaires are provincially regulated and are not CDIC members. Their deposits are protected instead by a provincial deposit insurer or guarantee corporation, and the rules differ by province: coverage limits, categories and what counts as a deposit are set provincially. Quebec's caisses populaires fall under Quebec's regime. A handful of credit unions have become federally regulated and are CDIC members, and the CDIC list flags them. If you bank with a credit union, the place to check is your province's deposit insurer or the credit union itself, not the CDIC.

How to check a member

The CDIC publishes a searchable list of member institutions on cdic.ca. Type the name of the bank or trust company; if it is a member, it appears, along with any trade names it operates. Online-only banks and brands with unfamiliar names often turn out to be divisions of a member, which is useful to know because their deposits then share that member's limit. The CDIC has also noted that proposed changes to its deposit insurance framework had not yet taken effect as of its latest update, so the rules above are the ones in force.

Good to know

Because an FHSA, a TFSA and an RRSP are each their own category, a saver can hold deposits in all three at one bank and have each insured to $100,000, on top of ordinary accounts in their own name.

Who this matters for, and what to check

• Anyone with more than $100,000 in one name at one bank: the excess is uninsured; a second category or a second member institution brings it back under cover.
• Anyone with several brands of the same bank: look up the parent on the member list, because the brands share a limit.
• Anyone holding funds or ETFs: these are not deposits and are not CDIC-insured, whatever account they sit in.
• Credit union members: ask your provincial deposit insurer what is covered and up to how much.
• Anyone with a US-dollar account: it is covered, but it counts toward the same category as your Canadian-dollar accounts in the same name.

The takeaway

CDIC coverage is $100,000 per depositor, per category, per member institution, covering deposits and GICs in Canadian or foreign currency and excluding investments. It costs nothing, requires no claim, and pays non-registered deposits by cheque in the days after a closure while registered deposits are transferred. Credit unions are covered provincially instead. The one thing to do today is check the member list and add up what you hold in each category at each institution.