Are your deposits insured?
By Pam Withers • Bankrate.com

There's still an eccentric or two out there who thinks stuffing bills in his mattress is safer than depositing his hard-earned bucks in a bank. Have you ever wondered if, come a calamity of bank failures, those characters might have the last laugh?

The truth is, your savings, up to $60,000, is better off if deposited in a bank. That's because when a Canadian financial institution tanks, the Canada Deposit Insurance Corporation, a federal Crown corporation, steps in to reimburse consumers for as much as $60,000 held at its member institutions.

To determine whether your financial institution is a CDIC member, look for a red sticker with those initials on the front door or at the counter, check out the CDIC Web site or ask the teller.

Which deposits are insured?
These days, $60,000 isn't what it used to be, and some of us may have deposits that total more than that sum. So what, specifically, does the CDIC insure?

• Savings and chequing accounts
• Term deposits, such as guaranteed investment certificates (GICs), and debentures issued by loan companies
• Money orders and drafts
• Certified drafts and cheques
• Traveller's cheques issued by member institutions.

The CDIC does not insure the following:

• Foreign currency deposits (e.g., accounts in U.S. dollars)
• Term deposits with a maturity date of more than five years from the date of deposit
• Debentures issued by chartered banks; bonds and debentures issued by governments and corporations
• Treasury bills
• Investments in mortgages, stocks and mutual funds.

Every once in a while, we'll hear the heartbreaking tale of an elderly depositor who assumed that, in the unlikely event of a bank crash, she wouldn't lose a penny. And yet, when her bank folded, she ended up losing a major slice of her life savings, due to having more than the insured amount in poorly structured accounts.

Relax. Those stories are from the U.S. or farther afield. In Canada, exactly two banks have folded since 1928 -- both in Alberta in the 1980s -- and no consumer lost money in the process. Since the CDIC was created in 1967, 41 other financial institutions (mostly trust companies) have failed, but none since 1996.

"When a member institution fails, CDIC makes a deposit insurance payment as soon as possible, usually within two months," says Danielle Legault, information services supervisor for the CDIC.

"You do not need to file a claim for insured deposits. CDIC automatically makes payment of insured deposits based on the member institution's records. If your deposits are insured, we will write to you advising how and when you will receive your deposit insurance payment," she says.

The CDIC deposits the insured funds in an account in your name with another member institution, or mails you a cheque for the insured amount. The payment includes the principal amount of all eligible deposits to the $60,000 maximum.

"Accrued interest will be calculated on eligible deposits up to the date of the deposit insurance payment or the date on which a court application is filed to wind up the failed institution, whichever comes first, and will be included in the deposit insurance payment," says Legault.

Checking for insurance is your responsibility
Depositors are expected to know whether their institution is a CDIC member, and how far the CDIC's coverage extends. Those who suspect their savings might cross the $60,000 threshold should request that the person opening their account show them in writing how to structure the account for insurance.

"When you're depositing money or making an investment, ask if your money will be protected," says Maura Drew-Lytle, spokeswoman for the Canadian Bankers Association. "You can confirm if a specific product is insurable by the CDIC by asking for the institution's deposit register. This is available at financial institutions or through the CDIC Web site."

You can also use the CDIC's deposit insurance calculator to determine if your money is insured. Armed with nothing more than information from your financial institution passbooks and statements, you'll have a report within 10 to 15 minutes that outlines your deposit insurance coverage.

The CBA, meanwhile, offers advice on what is and isn't insured through an example of a husband and wife's finances:

What about joint deposits, trust deposits and registered plans? Here's Legault's quick overview:

• Joint deposits: The $60,000 maximum applies to the joint owners collectively, not to each individual. Joint deposits that use "and" are not insured separately from joint deposits that use "or."
• Trust deposits must have named persons as beneficiaries to be eligible for separate deposit insurance protection. These are insured separately from deposits made directly by the beneficiary in his or her own name. However, all eligible deposits in trust that have the same trustee and the same beneficiary are combined, and the total is insurable only to a maximum of $60,000, including accrued interest. Deposits held in trust for a purpose, such as the construction of a school, do not qualify for deposit insurance protection separate from other deposits held in the trustee's name.
• To avoid collapsing RRSPs and RRIFs -- and avoid the tax consequences -- the CDIC always tries to transfer the insured funds to another member institution.

Of course, the collapse of your financial institution is not a scenario over which you need to lose sleep; a lumpy mattress full of money is far more likely to rob you of your beauty rest.

"Canadians enjoy one of the most efficient, secure and lowest-cost banking systems in the world," says Drew-Lytle. "The nature of our branch-banking system, the regulations under which the banks operate and the size and stability of our domestic chartered banks, and foreign banks operating in Canada, ensure that our customers' deposits are safe."

Pam Withers is a business journalist, business-book editor and author of a best-selling teen novel.