How are Investors Protected in Canada?
How are investors protected in Canada? Canadians generally have two sources of account protection in Canada: the Canada Deposit Insurance Corporation (CDIC) and the Canadian Investor Protection Fund (CIPF). Both are intended to maintain investor confidence in the Canadian financial system. In this article, we explain the role of the CDIC and CIPF and the kind of protection each offers.
How CDIC Protects Canadian Investors
The Canada Deposit Insurance Corporation (CDIC) is a federal Crown corporation that provides protection for eligible deposits, within stated limits, made with a member institution, in the event of the member institution’s insolvency. Member institutions include banks, trust companies, federally regulated credit unions and loan companies.
CDIC Protection Limits
If a CDIC member institution fails, eligible deposits that are held at each member institution are protected to a maximum of $100,000 (in Canadian dollars; including principal and interest) for each separately insured category.
With respect to a family household, the $100,000 maximum applies to each deposit category, per person per institution.
For example, a family’s eligible deposits at a single banking institution could include a savings and chequing account for each spouse and a joint deposit account, as well as GICs, RRSPs, RRIFs and TFSAs for each spouse. Similarly, any children’s accounts in each category would also be covered individually to the $100,000 limit.
A similar deposit structure could be duplicated at multiple member institutions, with each individual account also qualifying for the maximum $100,000 coverage, enabling most households to ensure all their deposited assets are protected, as long as each account does not exceed $100,000.
It is important to note that coverage for joint accounts is for a total of up to $100,000 regardless of the number of depositors for the joint account.
How CIPF Protects Canadian Investors
Now that you are aware of how the CDIC protects Canadian investors, what about the CIPF?
The Canadian Investor Protection Fund (CIPF) is a not-for-profit corporation created by the Canadian investment industry to protect client accounts.
The CIPF ensures protection, if the securities, cash, or other assets held in a client’s account are not returned to the client following a CIPF member’s insolvency.
The CIPF is sponsored by members of the Investment Industry Regulatory Organization of Canada (IIROC), the self-regulatory organization for registered investment dealers in Canada. A CIPF member is an investment firm that is a member of the IIROC. If you, as an investor, open an account with a CIPF member, you automatically receive CIPF coverage.
For individual investors, the CIPF protection limits are:
- $1 million (in Canadian dollars) for all general accounts combined (cash accounts, margin accounts, TFSAs, etc.);
- $1 million for all registered retirement accounts combined (RRSPs, RRIFs and LIFs); and
- $1 million for all RESPs combined where the client is the plan subscriber.
The CIPF does not cover losses due to:
- Changes in the market value of securities;
- Unsuitable investments;
- Poor investment advice;
- Misrepresentations made by an advisor;
- Insolvency of the underlying company that issued your security; or
- Important information that was not disclosed to you.
The Bottom Line
Both the CDIC and CIPF are intended to ensure confidence for Canadians in Canada’s financial institutions. Canada’s financial institutions, especially its banks, are among the most stable in the world. Accordingly, the protection of the CDIC and CIPF is rarely called upon.
Remember, there is no actual insurance for investment returns. The best investment insurance is employing the services of an experienced investment professional.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.