This post is sponsored by Canada Deposit Insurance Corporation (CDIC). All views and opinions expressed represent my own.
After the ordeal that was 2020, you may be more anxious than ever about your finances.
Many Canadians, including myself, faced financial challenges with work interruptions and ineligibility for government supports. We were forced to use debt or rely on savings to make ends meet, and many still are.
It’s more clear now than ever before how important it is to have an adequate Emergency Fund that can support you through anything. And because your Emergency Fund keeps you safe in times of need, you need to also make sure your Emergency Fund is safe!
CDIC is free and automatic deposit insurance at member financial institutions. It protects your money, so your money can protect you.
How the Pandemic and Lockdowns changed how I managed my Money
I used to advocate for smaller emergency funds of $3,000 or $5000, and tell people to focus the rest of their efforts on debt and investing. I felt like financial gurus insisting that nothing less than 3 to 6 months of essential expenses in savings was asking too much of debt-burdened Millennials and GenZ just starting out in their career.
Facing job interruption, I realized $5,000 really isn’t enough for a crisis. Even $10,000 can come up woefully short if you have dependents. You have to think of your Emergency Fund as an investment in your financial security, because that’s exactly what it is!
I had to take two and a half months away from work to stay home with my daughter when the daycares closed, which meant I couldn’t work. For a while, I attempted to cram work hours in after bedtime and when my child was distracted, but it only left me more burnt out and stressed. Lockdowns and social distancing rules meant I couldn’t hire a babysitter or even get help from family.
Prior to this, I had never imagined a scenario where both my income and my investments would be down – and down a lot. I watched more than 25% of my investment portfolio disappear in a single week, and my income evaporated when I stepped away from my company.
The stock market recovered quickly, but my company revenue lagged even when I returned to work. Some businesses didn’t survive COVID-19, and the pandemic had wiped out partnerships I’d had for years. It wasn’t until early 2021 that I felt I was finally doing ok again financially – nearly an entire year after the first shut down in March 2020.
Now more than ever I’m focused on building and maintaining a huge cash cushion to protect myself and my daughter in the event of catastrophe. I no longer see an Emergency Fund as savings to cope with a single event like a car repair, but a life raft of business revenue and income that can keep things afloat no matter what happens.
Building & Protecting your Emergency fund
Your Emergency Fund should contain at least 3 months of essential expenses, but more is always better. In fact, you may make your Emergency Fund a savings account you continuously add a small amount to, even after you’ve surpassed your goal. Is there such thing as being “too prepared”? I certainly don’t think so anymore!
If you’re just starting out, aim to save $1,000 first. Then increase your target to $5,000 and ultimately $10,000 or more. I personally keep $20,000 on hand for Emergencies to protect myself and my child, but I maintained my automated transfer of $20 per week to my savings even after I surpassed this amount.
Sinking funds are the secret saving hack
The easiest way to build your Emergency Fund up is with sinking funds. These are small amounts allocated on a weekly basis to grow the account. Saving $25 or $50 per week feels easier to do than saving $100 or $200 per month, but the result is the same!
It might not seem like much, but it only takes $20 per week to save over $1,000 in a year.
Your Emergency Fund can’t fully protect you if it’s not protected!
Return on investment isn’t a focus for your Emergency Fund, but high interest doesn’t hurt! Look for a high-interest savings account to keep your Emergency Fund in cash. This ensures it remains liquid and easy to access in the event that you need it.
You should also know how your Emergency Fund is protected. If it’s held at a CDIC member institution, it’s insured against any potential financial institution failure.
What is CDIC?
The Canada Deposit Insurance Corporation, or CDIC, is the federal Crown corporation that protects eligible deposits that are held in CDIC member institutions. They insure your money in the event of a financial institution failure.
CDIC is funded by premiums paid by its member institutions and does not receive public funds to operate. You do not have to pay for your CDIC coverage at your bank. It’s already taken care of if you’re banking at a CDIC member institution!
You can learn more about CDIC here.
What does CDIC do?
Canada’s financial system is strong and stable and Canadian financial institutions must meet robust prudential standards to maintain their safety and soundness, but like all businesses they can fail.
Since 1967, there have been financial institution failures —but not one person lost a single dollar under CDIC protection. In the event of a financial institution failure, CDIC has many tools to ensure you would have quick access to your insured deposits.
Many people may not realize how safe banking in Canada can be. Plenty of Canadians already have CDIC protection on their savings and don’t even know it!
How to know your Emergency Fund is in good hands
Your Emergency Fund should be in a bank account, not an investment like mutual funds, stocks, or cryptocurrency. Not only can those assets be volatile and a hassle to access in a pinch, they are not insured by CDIC.
CDIC safeguards eligible deposits of up to $100,000 in each of their coverage categories at each of more than 80 member institutions. Check to see if your financial institution is a CDIC member and make sure you’re keeping your emergency fund in an eligible account.
If your money is in an eligible product and you bank with one of their members, you would be protected if the financial institution were to go out of business. Here is more information on how deposit insurance works.
CDIC covers savings and chequing accounts, as well as Guaranteed Investment Certificates (GICs) and foreign currency. CDIC covers eligible deposits SEPARATELY (up to $100,000, including principal and interest) for each of the seven categories. If you’re curious about how much of your savings is covered, click here to calculate your coverage.
Your CDIC protection is free and automatic
If you bank with a CDIC member, protection is free and automatic. You don’t need to fill out any forms, or pay any fees for coverage. As long as you’re banking with a CDIC member institution and your money is in an eligible coverage category your savings are safe.
An easy way to see if you’re protected by CDIC is to look for the purple logo in-branch, or on your financial institution’s website, ATM or mobile banking app. It looks like this:
You might even learn that you already have CDIC coverage on your deposits at the financial institution you’re banking with!
Another way to check, especially if you’re looking at opening an account at a new bank, is to check this list of CDIC members on their website. To see if your financial institution is a CDIC member, click here.
Win $10,000 With CDIC’s Financial Literacy Game!
If you want a huge head start on building that Emergency Fund, you have until March 22 to enter to win CDIC’s financial literacy game. They are giving away $10,000 in prizes Click here to play.
We can’t predict all the events that will wreak havoc on our finances in our lifetime, but we can build up a defense against them with an Emergency Fund. An adequate Emergency Funds that covers 6 months or more in essential expenses can take years to build, so be patient! Remember that your money can only protect you if it’s protected, so choose a CDIC member institution to keep your deposits safe.