Canada deposit insu-rance Corp. should protect all money in guaranteed investment products within registered retirement plans at CDIC-member institutions, says an Ontario deposit broker. Currently, deposit insurance protection is available up to $100,000.
Canadians’ retirement savings are vulnerable because any amount above $100,000 in a registered account, such as an RRSP, a RRIF, a LIRA or a LIF, at a single financial institution is not insured against the unlikely — but not impossible — event of a default, says David Newman, principal director of Oakville, Ont.-based Fiscal Agents Inc.
“It’s an important issue. People don’t know they are being exposed,” says Newman, who wrote an open letter to federal Finance Minister Jim Flaherty in November and has begun a petition to bring about the change.
The initiative is in its early days and has found little traction within the industry. The Canadian Bankers Association does not have a position on the issue, says Maura Drew-Lytle, a spokeswoman for the CBA.
Newman is not suggesting the CDIC limit be raised on non-registered accounts; only on registered retirement accounts, in which, he says, it is more likely that Canadians will accumulate large sums in guaranteed investment vehicles.
CDIC insures every individual up to $100,000 in total funds in qualifying investments, such as chequing and savings accounts and GICs with terms of five years or less, held in non-registered accounts. A further $100,000 in protection is available for qualifying investments in registered accounts, per financial institution. A person who uses more than one financial institution would receive $100,000 deposit insurance protection at each institution. The CDIC limit was raised from $60,000 two years ago.
As investors age, Newman argues, they may find themselves in a position in which part of their retirement savings is not protected by CDIC insurance. For one thing, consumers tend to place their retirement savings with one financial institution, if only for the sake of convenience.
If the investor chooses a small, CDIC-member financial institution to take advantage of higher interest rates, for example, that investor might be in a position in which any saving above the current CDIC cap would be vulnerable in the event of a bank default.
In another example, an investor might unexpectedly go above the $100,000 limit. For instance, a surviving spouse automatically will have the proceeds of a deceased spouse’s RRSP rolled over into his or her own RRSP, probably putting the surviving spouse over the $100,000 limit. If the deceased spouse holds investments in locked-in term deposits, the surviving spouse also won’t be able to move the money in the locked-in vehicles to another financial institution until they mature.
Newman adds that the limit on CDIC deposit insurance protection is inequitable, considering that the insurance coverage offered by some provinces for deposits in credit unions is better than that offered by the CDIC.
Alberta, Saskatchewan, Man-itoba, New Brunswick and Prince Edward Island provide unlimited deposit insurance for registered accounts, while Nova Scotia has a $250,000 limit. The remaining provinces offer a $100,000 limit.
While the cost of CDIC insurance is borne by the banks and, presumably, is passed on to the consumer in the price of products, Newman says, the extra cost of unlimited CDIC insurance would be relatively insignificant and would be welcomed by consumers as a fair cost for unlimited protection. IE
No-limit investment protection?
Deposit broker: remove $100,000 insurance cap on registered investments
- By: Rudy Mezzetta
- March 5, 2007 October 30, 2019
- 12:24