The Canadian federal government has proposed raising the deposit insurance limit under the Canada Deposit Insurance Corporation (CDIC) to $250,000, marking the first increase in over 20 years. The measure, outlined in the 2026 budget, aims to modernize the deposit insurance framework, which currently protects up to $100,000 per depositor. Since 2005, the limit has remained unchanged, despite inflation eroding its real value. The proposal follows recommendations from the Bank and Trust Companies Association, which urged doubling coverage to $200,000 in 2023. Canada currently has the lowest deposit insurance level among G7 nations, with approximately 65% of deposits at the country's top six banks being uninsured, according to DBRS Morningstar. The government's proposal includes a periodic review of the insurance framework every 10 years to ensure it remains aligned with economic conditions. It also aims to align Canada's limit with the U.S. standard and some Canadian provinces. Additionally, the plan introduces temporary high balances for life events like selling a home and removes deposit insurance limits for eligible registered and tax-free accounts. The CDIC, which has 85 members as reported in its 2025 annual report, would see these changes implemented through legislative amendments. The proposal reflects a response to concerns about the adequacy of current coverage, particularly as the real value of $100,000 has diminished since 2005. The government emphasized that the changes would provide better protection for non-retail depositors and support evidence-based policy development through improved data access.

Deposit insurance prevents bank runs by assuring depositors that their money is safe. At the same time, it can weaken bank discipline. While some argue that expanding insurance makes banks lend more aggressively, this is not always the case. The impact depends on how banks fund their lending.

Canada’s Big Six banks hold approximately 85% of all deposits, with Desjardins adding another 6%, totaling 91%. However, their savings and term deposit rates are among the lowest in the country. For one-year GICs, the best rate offered by these institutions is 2.75%, while credit unions like Pathwise Credit Union offer 3.70%. Five-year GICs from Big Six banks max out at 3.35%, compared to 4.10% from WealthOne and MCAN Financial. Savings accounts also show a disparity, with Big Six institutions typically offering promotional rates that drop sharply after a few months, whereas others provide ongoing rates of 2% or more. While CDIC insurance ensures safety for deposits up to $100,000, credit unions often offer broader coverage. Experts argue that Canadians prioritize trust and convenience over higher yields, but comparing rates across institutions can significantly improve returns without compromising security.

RBI’s move to risk-based deposit insurance aligns premiums with bank risk, rewarding good banks and enabling higher protection for depositors. by Mint Owl, BasisPointInsight.com

to RePEc:wbk:wbrwps:2679

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