There’s a fine line between easing people’s minds about the risks to their bank deposits and lulling them into complacency.
A week ago, our biggest banking worry was whether we were getting enough interest on our savings or guaranteed investment certificates. Then came the collapse of two U.S. banks and concerns about a much bigger global bank, Credit Suisse CSGKF. It’s not alarmist for Canadian depositors to wonder how safe their bank deposits are – it’s common sense.
The simple answer is that Canadian banks are safe. We have a vigilant banking regulator in the form of an independent federal government agency called the Office of the Superintendent of Financial Institutions, and protection for deposits through a federal Crown corporation called Canada Deposit Insurance Corp.
Here’s where we get to the risk of complacency. CDIC has handled 43 bank failures since its creation in 1967. And while no insured depositor has lost money under CDIC protection, the limit to coverage is currently a not especially generous $100,000 in combined principal and interest per eligible account.
Recent developments in global banking argue for a strict adherence to that limit, no matter which bank you deal with. It’s a pain to spread your savings deposits and GICs among banks to stay under the CDIC limit, but worthwhile because it reduces the risk of losing money to infinitesimal levels.
The collapse of Silicon Valley Bank and Signature Bank seems to contradict this. The U.S. Federal Deposit Insurance Corp. covers up to US$250,000 per eligible deposit, much superior to CDIC. But a lot of deposits at SVB and Signature exceeded this limit and thus were not covered. To maintain confidence in the banking system and prevent a run on other banks, U.S. federal regulators announced that all SVB and Signature deposits would be protected.
Backing uninsured deposits is something you do to maintain calm at a delicate time for the economy. Inflation is a problem, interest rates are high and there’s concern about a recession ahead. The last thing the United States and other countries need right now is an eruption of worry about the financial system. We had that in 2008-09 and it was traumatic.
The problem with making sure everyone gets paid in full in a bank collapse is that people lose their sense of urgency about following deposit insurance limits. Don’t give in to that.
If you buy a one-year GIC with a 5-per-cent return, invest a maximum $95,200 in round numbers. That way, both principal and interest will come in below the CDIC limit. You can also get full CDIC protection for different eligible accounts at the same bank – an account in one name, a joint account, a tax-free savings account, a registered retirement savings plan account and so on.
For help spreading GIC money around to stay within deposit insurance limits, try a deposit broker. They have access to multiple GIC issuers and can work with you to maximize rates and safety.
Credit unions have their own provincial deposit insurance plans, most with either unlimited coverage or a $250,000 limit. I wrote something on the safety of credit-union deposits in Manitoba – a hub for CUs operating online banks with a national reach – during the height of the pandemic and you can read it here.
CDIC says on its website that it protects more than $1-trillion in Canadian deposits, but the agency’s 2022 annual report shows cash and investments of $7.3-billion. There’s a somewhat complicated reason why this gap isn’t the concern it appears to be.
If a Canadian bank fails, depositors can be protected through a “bail-in” process where investors holding certain kinds of bank debt have those securities converted into stock. This process would help solidify a struggling bank’s finances and protect deposits.
Earlier this week, The Globe and Mail reported that OSFI banking regulators had taken steps to begin daily check-ins with banks to monitor their financial situation. We have an early-warning system in place to detect the kind of stresses that led to the collapse of SVB and Signature.
Beyond regulatory supervision, we have a strong deposit insurance plan in Canada. Yes, we could use an upgrade from the $100,000 maximum on coverage. The ceiling was last raised, from $60,000, in 2005.
But with scary headlines about global banks piling up, CDIC is your best stress reducer. Are you fully protected? Find out right now.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.
FAQs
The simple answer is that Canadian banks are safe. We have a vigilant banking regulator in the form of an independent federal government agency called the Office of the Superintendent of Financial Institutions, and protection for deposits through a federal Crown corporation called Canada Deposit Insurance Corp.
Are deposits in Canadian banks safe? ›
Conclusion. Keeping your money in a CDIC-insured bank and not going over $100,000 in account value protects your money. The Canadian banking system is so well-regulated that bank failure is unlikely. The assurance of a CDIC-insured bank can free you to find the right account for your financial needs.
Are Canadian banks at risk of collapse? ›
Thankfully, experts say Canadian banks are significantly less vulnerable to failure than our neighbours' to the south, for many reasons, and your money in a Canadian bank will continue to be safe.
How safe are Canadian banks right now? ›
Canadian banks are very secure, especially with the protection of the CDIC. It's important to know that the CDIC doesn't just insure $100,000 per client, it's per account. The types of accounts they insure are: Savings accounts.
How safe are credit unions in Canada? ›
Credit unions are regulated & deposits are protected
Credit unions in Canada are either provincially or federally regulated.
Are Canadian banks safer than American banks? ›
Canada regulates its banks very strictly and doesn't let many players enter the market. As a result, Canadian banks tend to be safer than U.S. banks. In this article, I will explore two Canadian bank stocks that are relatively safe compared to their U.S. cousins.
Are any Canadian banks in financial trouble? ›
Bank failures haven't happened often in Canada. The Canada Deposit Insurance Corporation (CDIC), which insures deposits in Canadian banks, last handled one in the mid-1990s, and the Crown corporation has dealt with only 43 such incidents since it was established in 1967.
Should we be worried about Canadian banks? ›
The simple answer is that Canadian banks are safe. We have a vigilant banking regulator in the form of an independent federal government agency called the Office of the Superintendent of Financial Institutions, and protection for deposits through a federal Crown corporation called Canada Deposit Insurance Corp.
What happens to my money if a bank closes in Canada? ›
If your bank fails, CDIC will contact you regarding the payout procedure. Visit the CDIC web site for a list of current CDIC members. A separate deposit-insurance corporation in each province protects investors' money if a credit union, caisse populaire or provincially regulated trust or loan company fails.
Is my money safe in a bank during a recession Canada? ›
Key takeaways. The Canada Deposit Insurance Corporation (CDIC) protects your eligible deposits at member financial institutions. Eligible deposits are also covered by provincial insurance plans. Your investments may be protected if you deal with a company that's a member of the Canadian Investor Protection Fund (CPIF).
While we think the problems related to SVB are unique, we also think Canadian banks are unlikely to suffer a SVB-style bank run. One key reason is Canadian banks are easier to supervise because there are only 85 banks in Canada and six of the country's largest banks account for over 85% the industry's assets.
What would happen if Canadian banks fail? ›
Is your money safe? The short answer is probably. In Canada, bank deposits are guaranteed by the Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation established in 1967.
What is the safest bank to keep your money in? ›
JPMorgan Chase, the financial institution that owns Chase Bank, topped our experts' list because it's designated as the world's most systemically important bank on the 2023 G-SIB list. This designation means it has the highest loss absorbency requirements of any bank, providing more protection against financial crisis.
Is it better to put your money in a credit union or a bank? ›
Credit unions tend to offer lower rates and fees as well as more personalized customer service. However, banks may offer more variety in loans and other financial products and may have larger networks that can make banking more convenient.
Is money safer in a bank or credit union? ›
Generally, credit unions are viewed as safer than banks, although deposits at both types of financial institutions are usually insured at the same dollar amounts. The FDIC insures deposits at most banks, and the NCUA insures deposits at most credit unions.
How much are Canadian bank deposits insured for? ›
Deposits to your chequing or savings account are eligible for up to $100,000 of coverage. This is an important note: Each account is insured for up to $100,000.
What Canadian banks are too big to fail? ›
It has identified our six largest lenders as “domestic systemically important banks” - meaning they're considered “too large to fail”. These banks are Bank of Montreal, Scotiabank, CIBC, National Bank, RBC and TD.
Which Canadian bank is safest? ›
All the major Canadian banks are both safe to hold accounts in and invest in. By major Canadian banks I include CIBC, TD, BMO, RBC and Bank of Nova Scotia. During the financial crisis of 2008 TD was not affected by dubious investment accounts.
How much cash deposit is suspicious in Canada? ›
You must aggregate transactions of any amount (at, below or above $10,000), under the 24‑hour rule, if together these transactions: total $10,000 or more within a 24‑hour window and.
Are Canadian banks stable? ›
The report argues that Canadian banks remain stable. Credit performance among the large banks remains strong, with liquidity and capital requirements well above the regulatory minimums. However, the small and medium-sized banks are experiencing an increase in mortgage arrears.
