A common problem for GIC investors is to stay under the $100,000 limit for Canadian Deposit Insurance Corporation (CDIC) coverage in case a bank fails. This can involve the hassle of trying to maintain accounts at several different banks. I have a potential solution that also solves the side problem of having to fight with bank staff to get a decent interest rate.
The rules for what deposits are covered by CDIC can be tricky. Some writers just say that you’re covered up to $100,000 in each account, but this isn’t exactly right. For example, if you have two GICs in separate accounts both in your name in the same bank, they count together for the $100,000 limit.
Only banks that are CDIC members are covered. Further, as this CDIC web page explains, accounts that have the same owners at the same bank and holding the same type of deposits get lumped together for a total of $100,000 coverage. So, you can’t just set up several GIC accounts all in your own name at the same bank to get around the limit.
Knowing all this, many GIC investors have accounts at several banks. But dealing with several banks to negotiate GIC interest rates is a hassle that many investors would rather avoid.
One solution is to open an account at a discount brokerage that offers GICs from many different banks. As I write this, Investorline has access to GICs at 14 CDIC-covered banks. I assume other discount brokerages have similar offerings. On a 2-year cashable GIC, the Investorline list includes one bank offering 2%, two banks offering 1.95%, and another 1.9%. All these rates are better than the ones I last heard offered by a bank branch to a long-time customer.
Dealing with a discount brokerage isn’t for everyone, but if you’d rather poke away at your own computer in one account instead of going into the branches of multiple banks, this approach may be for you. A side benefit is that you’ll probably get better GIC interest rates.