Liquidating home equity by downsizing?

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Many Canadians sell the family home and move to a condo or townhouse or to a smaller community in order to boost their retirement portfolio.  But when closing day nets a large lump sum of savings, it’s especially important to ensure that your deposits are secure.

Fortunately, most people have nothing to worry about. If a bank ends up closing its doors, the Canada Deposit Insurance Corporation (CDIC), a federal crown corporation that was created in 1967, provides free and automatic insurance for eligible deposits up to $100,000.

In the time since CDIC was created, 43 Canadian banks have failed, but not one has closed its doors since Security Home Mortgage Corporation went bankrupt in 1996. Of course, as stable as our financial sector is today, no one can predict what will happen in the future.

“If protecting your savings is important to you, then CDIC can help ensure your hard-earned money is safe,” says Brad Evenson, CDIC’s director of communications and public affairs.

Robust coverage

The CDIC will cover up to $100,000 invested in cash or in a guaranteed investment certificate (GIC) with a maturity date of five years or less. However, it doesn’t protect mutual funds and stocks.

Depositors need to keep an eye on investment growth, says Evenson, because any gains above $100,000 that those GICs generate are not protected by CDIC.

“You wouldn’t want to hold a $100,000 GIC in a deposit because the interest you earn will soon take you over the coverage limit,” he explains.

TFSA protection

Investors can also sleep well knowing that money in their tax-free savings account (TFSA) is covered too.

In 2009, after the TFSA was introduced, the Canadian government changed the CDIC Act to include this new registered account.

While most people won’t have $100,000 in their TFSA yet, any money in cash or term deposits would be protected in a financial institution failure.

More money, more accounts

If investors have more than $100,000 they want to keep safe, they should consider using both an RRSP and a TFSA, says Evenson, as the Act allows depositors to protect up to the maximum amount in separate categories.

In other words, if someone has $80,000 in a five-year GIC at a bank and $31,500 in cash in their TFSA at that same institution, the money in both of those accounts will be protected.

“If a depositor has a $400,000 inheritance, for example, and wants to make sure that it is all protected, then CDIC coverage could be maximized by putting it into various accounts,” he says.

In order to best maximize that coverage, you need to know about CDIC’s different categories.  Each of the following categories is insured separately for up to $100,000 for the eligible deposits they hold.

  • Deposits held in one name;
  • held jointly;
  • held in trust;
  • in RRSPs;
  • in RRIFs;
  • in TFSAs.


By taking advantage of CDIC protection — and maximizing that coverage — you can sleep well knowing your retirement dollars are safe, no matter what happens to the bank – as long as it is a member of CDIC.


Talk to your financial advisor or financial institution about deposit insurance, or download CDIC’s free estimator app from your favourite app store. Take responsibility for your money and keep it safe in your retirement.


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