Finances

May 1, 2023 Published by South Alberta Chapter - By Walter Wakula

Avoiding a Loss of Your Bank Account Balance

From the Spring 2023 issue of the CCI South Alberta CCI Review

In the past week two U.S. banks have collapsed, the Credit Suisse bank group needed a lifeline from the Swiss government to survive and a group of large US banks lent $30 billion to the ailing First Republic Bank to maintain confidence in the US banking system. Bank regulators have taken unprecedented measures to avoid further problems by backstopping the banking industry which has descended into turmoil at lightning speed. This is a wakeup call for Alberta condominium corporations and their property managers to take measures to avoid a loss of all or part of the cash held in their bank accounts. If you have more than $100,000 in your bank accounts or your bank balances plus guaranteed investment certificates (GIC’s) with one bank, trust company or credit union add up to more than $100,000, then read on.

Deposit Guarantee Insurance

The Canada Deposit Guarantee Corporation (CDIC) insures the deposits in deposit accounts, GICs, deposit receipts and similar deposits in member banks, trust companies and certain but very few credit unions. These deposit guarantees are limited to $100,000 per financial institution, including the interest accrued on these funds, for Canadian dollar deposits only and are further limited to GICs and other financial instruments maturing in five years or less.

The Alberta Credit Union Deposit Guarantee Corporation (CUDGC) is an Alberta provincial agency with a mandate to provide regulatory oversight and a deposit guarantee to enable a safe and sound credit union system in Alberta. It guarantees the repayment of all deposits with Alberta credit unions, including accrued interest and had about $418 million is securities at the end of 2021 to back up its guarantee. Additionally, the Credit Union Act provides that the Government of Alberta will ensure that this obligation of CUDGC is carried out. Although not an outright guarantee this provision provides comfort to credit union depositors.

ATB Financial (ATB) is an Alberta financial institution that is owned by the Government of Alberta as an agent of the Crown in right of Alberta under the ATB Financial Act. The repayment by ATB of money deposited and interest payable on that money is guaranteed by the Crown in right of Alberta.

Avoiding a Loss of Your Bank Account Balance

Based on federal and provincial deposit guarantees, your cash deposits, GICs etc. are 100 per cent guaranteed at ATB Financial and at Alberta registered credit unions and are guaranteed up to $100,000 at member federally registered banks, trust companies and certain but very few credit unions. It would be tempting to move all your investments and deposits exceeding $100,000 to ATB Financial or to a credit union. However, in investing, it is always critical to diversify because you never know what can happen in financial markets nor what can happen with changes to government policies. Recalling an old cliché, never put all your eggs in one basket. So before going any further check to see where your money is deposited, how much there is and what the deposit guarantee provisions are for that financial institution.

To diversify your cash/investment portfolio under a conservative investment policy it makes sense to keep your cash balances at one financial institution below $100,000 and to keep cash surplus to month-to-month requirements in a savings account. $100,000 seems a good rule of thumb even if your funds are at ATB or a credit union. Amounts exceeding $100,000 should be invested in GICs at a financial institution other than the one you bank with using a well thought out investment strategy. Shop around for the best interest rates. You will find that savings account rates have gone from as little as 0.01 per cent a year ago to as high as 4 per cent today and that GIC rates have gone from 1.5 per cent to 5 per cent today. This can generate approximately $5,000 per $100,000 per year in interest income with very little effort while reducing the risk in your cash/investment portfolio.

By Walter Wakula, BComm, MBA, ICD.D
President, Foothills Global Capital Group Inc.