Comparing Depositor Insurance in the U.S. and Canada

When money is deposited into your financial institution, you are implicitly trusting that it will still be there when you need it. Depositor insurance exists to backstop that trust, although the rules, limits, and structures differ meaningfully between Canada and the United States. For individuals with cross-border ties, understanding how U.S. FDIC insurance compares to Canada’s CDIC protection is an important topic in an uncertain world. At a high level, both systems share the same mission, are government-backed, free to the depositor, automatic, and designed to protect everyday depositors.

Established to promote stability in the financial system, depositor insurance protects your savings in the unlikely event of a bank failure, ensuring that assets are returned to the owner. Canadian bank failures are exceptionally rare, with none occurring since 1985, and the last major chartered bank failing in 1923, owing to a tightly regulated oligopoly of major banks. In contrast, the U.S. banking system, composed of thousands of smaller, decentralized, and less strictly regulated banks, has seen over 560 failures since 2001, with the last major bank failures occurring in 2023.

Not all U.S. banks are required to be FDIC-insured, although the vast majority of U.S. banks and savings institutions are. While federally chartered banks must be FDIC-insured, some state-chartered banks or specialized institutions might not be. Similarly, not all financial institutions in Canada are required to be CDIC-insured. While most major banks and federal trust/loan companies are members, some institutions specifically provincial credit unions, Caisses Populaires, and certain wholesale banks operate under different, provincial deposit insurance schemes. Separate insurance schemes also exist for brokerage accounts in both the U.S. and Canada.

Ultimately, insurance protections are only as strong as their ex-ante funding, the government’s commitment and capacity to honour its guarantees, and the confidence depositors place in public and private institutions.

Depositor Insurance in the U.S. (FDIC)

The Federal Deposit Insurance Corporation (FDIC) is an independent U.S government agency established amid the Great Depression, which insures deposits at most U.S. banks and savings institutions. This includes checking, savings, money market deposit accounts, and certificates of deposit (CDs). Conversely, asset classes such as stocks, bonds, ETFs, mutual funds, REITs, crypto assets, annuities, municipal securities, money market funds, (as opposed to deposit accounts) are not FDIC-insured. U.S. treasury bills, bonds or notes, are also non-deposit investment products that are not insured by the FDIC, even if they were purchased from an insured bank, although these investments are “backed by the full faith and credit of the U.S. government.” Unlike in Canada, foreign currency deposits are also not FDIC-insured.

Coverage is limited to $250,000 USD per depositor, per member institution, per ownership category. Ownership categories include individually held accounts, joint accounts, Individual Retirement Accounts, self-directed defined contribution plans such as a 401(k) or profit-sharing plan, self-directed Keogh plan accounts and Section 457 deferred compensation plan accounts, whether self-directed or not, as well as trust accounts (revocable or irrevocable).

Depositor Insurance in Canada (CDIC)

In Canada, deposit insurance is provided by the Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation. Savings and chequing accounts, guaranteed investment certificates (both principal and interest), term deposits, and certain foreign-currency deposits. CDIC coverage was expanded during the COVID-19 pandemic to include certain foreign currency deposits (e.g., USD denominated accounts at Canadian banks) and term deposits with maturities greater than five years, as well as, providing separate coverage for Registered Education Savings Plans and Registered Disability Savings Plans in addition to improving coverage for trust/nominee brokered deposits. 

Coverage is limited to $100,000 CAD per depositor, per member institution, per insured category. Separate coverage categories include sole owned accounts, joint accounts, such as TFSAs, RRSPs, RRIFs, FHSAs, RESPs, RDSPs and trust accounts although this only applies to cash deposits, term deposits, and GICs within these plan types. Each category receives its own $100,000 limit, per insured institution, across all accounts in that category.

Coverage depends on where the financial institution is regulated. As such, an account may be opened with a Canadian headquartered financial institution (e.g RBC Royal Bank) through their U.S.-based entity (RBC Bank U.S.), domiciled in the U.S., and thus subject to FDIC protection, distinct from Canadian based accounts, within the same broader financial services group.

Depositor Insurance Compared

Historically, both FDIC and CDIC have strong track records of depositor protection. Comparing the two, the U.S. system provides meaningfully higher protection, especially when considering the current strength of the U.S. dollar, offering over three times the protection coverage for the same eligible account.

In the past, most recently with the FDIC, both the FDIC and CDIC have used a “systemic risk exception” to make all deposits available to customers, even those beyond the insured limits on an exception basis. Typically, this exception is invoked to avoid “serious adverse effects on economic conditions or financial stability,” or a risk to the banking or financial system. Using this exception allowed the FDIC to avoid finding the “least-cost resolution.” The least-cost resolution means the one that would cost the FDIC and taxpayers combined, the least.

For high-net-worth individuals, spreading cash across multiple institutions, or taking advantage of multiple ownership categories intentionally is not uncommon, nor unwise. Some large financial institutions can even register deposits, and GICs across multiple entities of the same institution (i.e. a mortgage, or trust company) to maximize coverage.

Increasingly, banks and investment firms are offering consumers an ever-broadening array of investment and savings products. Many use these products to help buy a home, fund post-secondary education, or build a retirement nest egg. Understanding the risks, the insurance used to mitigate it and its coverage limitations, is an important step in ensuring that your “safe” money is there when you need it, providing peace of mind, on both sides of the border.