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Email this6:24 am
February 9, 2014
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This is my second post, and my first thread.
I started reading this forum a few months back, and I’ve found many of the topics relevant and sometimes very interesting. Many many times, different posters have commented on keeping your savings under the “CDIC” limit of $100,000.
A few years ago, most countries raised their coverage limits, Canada for example raised theirs from $60,000 to 100k, and the States upped their limit to $250,000. During the most recent American financial meltdown in 2008, England was seriously worried about a run on their banking system, so they assured everyone, “ALL YOUR MONEY IS SAFE. Please don’t make large withdrawals.” In Canada we have 5 major banks, so using the “CDIC” principals that would limit your savings to 500k. I will state now, I’ve been retired for 2 years and my entire nest egg is in 1 of those big 5 banks, making a little over 1% per annum. I have a good pension, and no interest in growing my savings any further. So that piddly 1%, isn’t a concern of mine. Hell, I figure the incompetent medical system here in Canada will kill me, long before I run out of money.
“CDIC” what does it really mean? Deposit insurance. Let’s say the worst happens… one of our banks fail. If this were to happen, Canada as a country would fail. There would be no insurance coverage. There would be no, “CDIC”. The government of Canada would have to intervene and shore up the troubled bank, long before its collapse. If the said bank happened to be a smaller player, one of the big five would step in, and acquire it. “ING and Scotia” being a recent example.
I look forward to your comments.
Thanks,
8:46 pm
October 21, 2013
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You may not recall, but some years back, I think it was in the 1980s, some financial institutions in Canada did fail. Not many, but it happened, and they were CDIC-insured. CDIC paid off the people who had accounts there. It was slow coming, months, and there were conditions under which the interest was not paid (this may have changed, I'm not sure), but it did come. I remember this quite well because a relative of mine had money in one of them.
The CDIC insures lots of much smaller banks, even today, and new banks are still being formed and acquiring CDIC protection. Any bank could potentially fail, but the Feds or the banking industry in general are much more likely to bail out one of the BigBanks. If they all go down, it will probably be world chaos, as Canada is felt to have one of the most solid banking systems, in which case, good luck to us all!
Take a look at the CDIC website for more details.
9:09 am
October 21, 2013
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CDIC may well have changed the rules since the event that I remember. I am certain that interest was not paid, and I am almost certain that it was a GIC. So, it's possible that interest would be reimbursed if it had already been credited to the account, but not otherwise, or some variation.
If, for example, interest was to be credited annually, and the institution failed 11 months into that year, then I doubt very much if they would pay any interest for that year.
I expect that if one sent an inquiry about this, they would be willing to clarify in writing what is the current policy.
10:03 am
October 21, 2013
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Yes, I think this may be correct, SD.
I see the page you referred to, which alludes to paying interest as well as principal.
However, on another page, in regards to RRSP coverage, it gives the example of someone who has an RRSP with X dollars in GIC and Y in savings account, both round figures. The coverage given is the sum of the two, and no mention of interest. I think it just refers to whatever is on your statement at the time as being invested with them, not a reference to promised returns to be received at later date. There are, as I recall, some GICs which only pay out at the end of the term, not even annually, although I can't recall if they are at banks or credit unions. It seems likely to me that in these cases you could potentially lose almost 5 years interest. My suspicious mind also wonders if the institutions that offer said type of GICs are qualifying for CDIC insurance with smaller margins of their own. Hmmm.
The following chapter from the Canada Deposit Insurance Act which governs CDIC makes no mention of "interest", only "deposit", as follows:
"Duty to insure
12. The Corporation shall insure each deposit with a member institution except
(a) a deposit that is not payable in Canada or in Canadian currency;
(b) a deposit in respect of which Her Majesty in right of Canada would be a preferred claimant; and
(c) so much of any one deposit as exceeds one hundred thousand dollars.
R.S., 1985, c. C-3, s. 12; 2005, c. 30, s. 101."
http://laws-lois.justice.gc.ca...../acts/C-3/
Again, this leads me to conclude that it is only the funds which have been already attributed to whatever account and presumably reinvested which are covered. This would include interest received (as that would be considered part of the deposit), but not accruing, I think.
And this would account for why my relative did not receive his interest.
I wouldn't be surprised if all the deposit insurance systems follow the same model, but haven't checked.
I am not a lawyer and have no professional expertise in this area. If anyone is in doubt, they should ask the CDIC or other insurer for clarification in writing.
Please write your comments in the forum.