Over two years ago I wrote a series on our banking systems. Additionally, in one article (found here) I touched on protect(ing) liquid assets. Cash.
In light of the SVB failure and the oncoming waves of consequence I am reposting this portion.
Additionally, the meaning of “insured deposit” is now seared into the modern mind.
How Do You Protect Your Deposits?
(it would be preferable if you found a form of posit)
In Canada your deposits are protected, without cost to you, by a federal crown corporation called Canada Deposit Insurance Corporation. In the US this same protection is provided by the Federal Deposit Insurance Corporation, with limits for each country. For the purpose of our examples we will assume you are the sole account holder.
For our $1M portfolio, the 10% liquid asset holding is relatively simple to protect against loss. $100,000 is insured in either country in any Savings, Chequing (Checking), Money Market, GIC, Foreign Currency or CD.
In the US there is protection of deposits as long as you do not exceed $250,000 at any single bank. Your liquid assets can be spread across a variety of accounts in any form and it protected up to the $250,000 maximum as a single institution.
If your portfolio value exceeds $5M and you are holding $500,000 in liquid assets, in the US, you would need to divide these holdings across two banks with $250,000 total holdings in each bank to protect against loss.
For Canadians, there is not a maximum limit attached to your bank. The limits for Canada are attached to a maximum balance in any single account and a caveat that “not every deposit you make at your financial institution is eligible for CDIC protection”. Fine print. In Canada your assets are protected for up to $100,000.
If your portfolio value exceeds $5M and you are holding $500,000 in liquid assets, in Canada, you would need to divide these holdings across five different holdings (insured category) with a maximum of $100,000 in each holding. For example, $100k in Chequing, $100k in Savings, $100k in GIC, $100k in Foreign Currency and $100k in CD. In Canada you are also insured for up to $100k in RRSP, TFSA and your property tax account for a potential total of $800k. Contents of your safety deposit box are not insured unless you purchase an insurance policy.
A Critical Question To Answer:
In Canada, is your bank a CDIC member?
In the US, is your bank an FDIC member?
If you answer no to these questions your liquid assets are not protected if the financial institution becomes insolvent. Move your money and avoid these other Great Destroyers of Wealth.
Additionally, all of our posts in the Financial Freedom series can be found here. And finally additional content can be discovered on our Youtube channel.
