How Safe is Your Money in Someone Else's Bank in Canada?

Without these organizations and a standard system, it would be generally challenging and risky to match up people with extra funds with those who need to borrow money. They become an intermediary of a transaction because they are putting this money into motion, because they don't want to just keep that money still and hold your deposit. They want to make themselves available for someone who needs money and they're going to go to them for free money.

So you're joined here with me, Henry Wong, chartered accountant and authorized infinite banking practitioner from the Nelson Nash Institute with Roman Pushkar, who's also a authorized infinite banking practitioner with the Nelson Nash Institute. And one of the things we want to talk about today is actually talking about how safe is your money.

And when we think about banking. Roman, what's kind of the first thing that comes to your mind when you think of a bank?

Yeah, Henry, that's a great question. You know, what comes to my mind is protection, safety and, you know, guarantees of some sort where I put my money. And I want to make sure that all my money is guaranteed and protected. Right. I envision like big vaults, you know, gold bars, security protection, you know, and yeah, I mean, it makes sense to me to keep my money in some, you know, very well protected place where I know it is not sitting in a vault. For sure.

I know how banks work. But at the same time.

I think of my money as being in a very well protected space where if the bank fails, then I'm guaranteed to receive my money back.

I've been fortunate to been born and grown up here in Canada, so I have that same perception, believing that the banks are very, very safe and my money's stored away in vaults and whenever I need to get access to it, I can get access to it at any point in time. Now, Roman, I think you had a little bit of a different experience growing up when it comes to banks. Do you mind sharing that?

Yeah, of course. So, you know, I grew up in Russian, Ukrainian community. So back I was born actually in Soviet Union where, you know, the government would change, you know, rules on a go. They will not let us know in advance so that we can, you know, protect our, or take our money from banks. And we would just wake up in a totally different country. We would just wake up in a situation where our money worth nothing. And because of, because of, you know, change of rules, because of change of currency, because of change of, you know, they will, they will, they will even, you know, make sure that my money in the bank is not protected. My bank may fall, may fail and then no one is guaranteeing that I get anything back. And we have so many, you know.

Times of repetitive frustration, repetitive, you know.

Negative experience where.

Biggest majority of the country will lose our savings, lose our money in banks. So when I came to Canada, it was kind of totally different situation. I feel like Canadian banking system is much more stable and secure. But at the same time I was, you know, learning, I was asking questions, hey, how much money is protected in a bank if I keep it in a bank? What happens if a bank fails? Then I know that it is better protected than back in Russia or Ukraine, but.

Is it really protected? This is the question we wanted to address today and we wanted to share with you what we found out.

If you really want to know more about this concept and what we're going to talk about is the concept of becoming your own banker. And what I want to encourage you to do is actually a lot of the concepts that we're going through is covered in this book, becoming your own banker. And further to that, if you really want to just know more about this concept, click the link below this video and go through watchibc.com again. The link to learn more about banking for yourself is watchibc.com now when we look at the stability comparison of Canada and let's say Russia and Ukraine, we kind of like, at least I've grown knowing that Canada has been a very stable place. But when we look into unraveling what's the actual protection or ability that will protect consumers putting money in a bank, we look into that question and now let's kind of explore that. So when we first look at the question, let's look at the definition of a bank or a financial institution. And a financial institution is an organization that deals in a variety of monetary transactions such as cash deposits, loans, exchanging securities and raising capital. It intermediates transactions between people who deposit or invest money and the people who need to borrow or raise money. So if we look at the role of financial institutions, they exist to solve the problem of making money available to the people and businesses who, who need it. And without these organizations and a standard system, it would generally challenging and risky to match up people with extra funds with those who need to borrow money. So the problem, the problem that I want us to think about is many people think banks are a safe place to store your wealth. If we look at that definition, it doesn't say that they are in the business of storing money. They're in the business of intermediary, being an intermediary for a transaction so we have to now look at whether or not the process or the system of banking, is it designed in favor for them or you.

Now, the next thing I want to kind of just use as a, as an example then is when you deposit money into a bank.

How you get that money from, let's say you work a job, you get money coming in, the place that you end up moving that money in or that gets deposited into a bank or stored is a bank. They call that a demand deposit. And this money that the bank will owe to you, they owe that money to you, so it's a liability to them. Now they become an intermediary of a transaction because they are putting this money into motion because they don't want to just keep that money still and hold your deposit. They want to make themselves available for someone who, who needs money and they're going to go to them for, for money. So, for example, someone wants to buy a car and they don't have enough money to buy the car, so they have to borrow more money to buy that car. So they're going to go to that bank or financial institution to borrow money to buy that car. And when they do borrow money for that car, the bank is going to lend them that money for a particular interest rate. And now when you store money with them as a demand deposit, they're going to pay you, at least at the time of this recording, the interest rate is about.05% for like a savings account. Whereas when you, when they lend money to someone else who needs the money, they can charge anywhere from like 2%, 3%, 5%, 10%, whatever is the percentage in terms of what they feel they can charge for the, for. And it would be accepted by the individual who needs the, needs that money. But ultimately that interest rate is extra cash flows that that person who borrowed the money will pay to use the money in terms of accomplishing their objective, like buying a car. So that's in a sense showing how they're a intermediary in a transaction between someone who needs money and someone who wants to store the money. But when we store the money though, how much are we actually protected? Roman, let's take a look at, looking at what Canadians are protected with in terms of when they store their money in a financial institution.

Absolutely. And we wanted to compare with Henry, storing money in a bank versus storing money in your own banking system, which is creating a participating dividend paying whole life insurance policy where you can create your own banking system that you control. You have ownership and control. And my client And Henry, I know that your clients also ask you, hey, how well is my money protected in my own banking system? Because this money is kept in a life insurance company contract. Right. And we address this question every single day. And we just wanted to kind of expand on that and compare side by side money protection in a bank versus money protection in your own banking system, which is whole life insurance policy. And when we talk about, you know, banks. So what accounts can you hold money money in banks with? Henry? What accounts do you know that you can hold money in?

Yeah, I can put money in a checking account, savings account, and, you know, they don't pay much interest to me. So, you know, I also move them into places like a tfsa, an rrsp. And you know, depending on certain ages, like when you reach 71, then an RRSP converts to a RRIF. So I have a multitude of accounts that I store my money in. Perfect.

Yeah. So, and then we need to understand that not all money in a bank in different accounts is equally protected. We need to understand that because it is very important to understand. Let's look at some examples here. So there's a cdic, it is a Canada Deposit Insurance Corporation. It is corporation that is sponsored by government of Canada. It says that.

It is a crown corporation, federal crown corporation, a part of government of Canada. And it protects eligible deposits in each of member financial institutions. So your institution has to be actually a member of CDIC in order to have protection to a minimum of $100,000 per separately insured category. So each insured category, like we just mentioned, you know, savings Account, mutual funds, GICs, ETFs are different and they have different protection for each category. In one financial institution, CDIC protects up to $100,000. So you can look at some examples here. If you go to your coverage protecting your deposits, you can actually look at how much you're protected in each category. For example, it breaks down here to different accounts. For example, in TFSA, $100,000 is protected. In RSP, $100,000 is protected.

And you know, checking account also is protected. But if you have.

Money in your name only in checking account, GICs or savings account, then only up to $100,000 is protected in your name, if it is in one name. So it has to be equally split between.

Members of your family, for example, a spouse, a husband and a wife. And if you want to actually make sure that all your money is protected, you have to.

Have a strategy in place where you can use different financial institutions and different accounts. For example, you want to put money in checking account in different financial institutions. You want to put money in TFSA in different financial institutions, RRSPs and also you want to split between yourself and your spouse and maybe your family as well. Now let's look at protection of your money in your own banking system. If you go to Assurus ca, then you can see that every life insurance company in Canada who wants to sell life insurance has to be a member of assurance. So Assurus is a nonprofit organization that protects Canadian policyholders. So insurance companies pay.

Certain amount of money to assurers in order to have some reserves in place and, and have the policyholders protected. Now the insurance company cannot actually terminate the membership as long as they have policies in force and they are licensed to write business in Canada. So it is very important that you are protected and your policy is protected. And let's look at how much protection actually you have in place. If you open this tab, it says how am I protected? You will see that the death benefit is protected $200,000 or it can be protected. If your death benefit is more than $200,000 then 85% or more of this amount is protected. So for example, if you have 1 million of death benefit then 850,000 is protected or more. So minimum 85%. Also your cash values is 60,000 protected. But if your cash value is actually more than 60, $60,000 then you have protection 85% minimum or more. For example, your cash value is $100,000 then 85,000 minimum is protected or more. Also there's some examples, you can look at some examples where you know.

Here on this website where if the liquidator of the insurance company recovers more than 85% of the insurance companies assets, then you can actually have more protection like 90% or 95%. But insurance is standard protection is 85% minimum.

So let me walk through an example just to show for illustrative purposes what it looks like if, how much protection you would get if you were to store the same money that you're flowing into your life, whether you're storing it with a member of the CDIC or if you're storing your money with a member of the Assurance. Okay. And so this is, I'm going to walk you through some of the examples here. So if we look at this, this particular individual, let's, let's say this individual is 35, saves 10,000 per year and over a period of 35 years at a rate of 30% with a tax rate of 30%. And so the Left side here you see this particular individual is saving money with a member of CDIC with an interest rate of 2%. And so if you're depositing $10,000 per year for 35 years, this is how much money you are saving away. 350,000. And because you're getting interest for the money that's being stored, compounded over that 35 year period time is $148, 148,000. And then the total deposit then makes becomes 498, 050. Now, a couple of things I just kind of want to further clarify. This is also based on money being stored in a unregistered account. So registered accounts include tfsa, rsp. This is just a unregistered amount being stored with that CDIC member. And so if you're storing that money outside, you've got to pay taxes. And that approximate tax is around 30% for 44,415. So your net cash value that has been accumulated after earning interest and paying taxes would be 453,635 over that duration of 35 years. And now if you were to graduate from this planet or pass away, you would be also your beneficiaries would then be left with 435,000. If we look at how much money is protected by from the cdic, again, this is specifically applied to just a GIC account. And one of the limitations when you're looking at how much you're protected is you're protected to the $100,000. How realistic is that? Well, let's kind of look at what that looks like. So you've accumulated a total cash value of 435,000. And we take a look at how much you're protected in case that member institution goes down, then you are exposed. I, you are exposed by 353,000. Okay. Yeah.

And it's only if this is in GIC, because if it's in RRSP or stock funds or any.

Mutual funds, then none of this will be protected. Is it true, Henry?

Yeah. If it's in a unprotected category like stocks, mutual funds, ETFs, as shown in what we talked about, it's not protected. But this, if it's in a, it's a protected category up to the 100,000. So you are exposed 353,000. Now, let's say you use that same 10,000 that you're contributing now to a properly designed participating whole life insurance policy, which is what we do here at Ascendant Financial. You are still depositing and saving 350,000 by way of premiums. And now if we look at that cash value for this particular individual at this age and the design that comes out of it over the 35 years, this cash value is actually 756,000.

And the death benefit is 1.975746. So this is how much the accumulated difference would be. And when we talk about the protection, so let's look at how much that protection is. If we look at the protection, the low amount.

Would start the minimum, since this amount is greater than that $200,000 threshold. So we've got to use an 85% example. So I mean use 85%. And so this 757,000 is insured and protected for 643,498 as a minimum. And that same death benefit again. Oh, sorry. Since the cash value is greater than the 60,000, then we apply the 85% rule. And you can see that 85% rule on the cash values is 643,498. Now if we look at the same whole life policy, sorry, the death benefit portion of it again, once it's higher than 200,000, we apply the 85% rule. So then the death benefit is actually, is actually more, that is actually 85% protected here in terms of assurance. Now if we look at how much money you've actually deposited into or contributed to the insurance company and how much you're protected by assurance, you've contributed 350,000. But even though the value of the 85%, you only recover 85%. Again, this is the worst case scenario if a liquidator is, is not involved in this transaction. If a liquidator is involved, they can recover maybe even more than 85%. But knowing though, if the insurance company was to go under, a liquidator has to be involved. So just for conservative's sake, we're just saying that 85% is what your minimum guaranteed in terms of protection. And so over 35 years, your cash values that would have been contributed have developed would be 757,000. Or the equivalent of what's protected would be 643. And if we look at the whole life death benefit would be 1.9 where you're actually protected for the 1.679384. And if we look at then how much. So now when we look at what I'm just sharing with you, where 85% of your cash values and death benefit at a minimum is protected by assurance, we look at the amount of money that you put in, which is 350,000, did you lose any of that three, would you be, would you lose 350,000?

No. It looks like because of compounding I have much more money and none of my 350,000 premiums are intact.

That is correct. So when we look at how much money when we've stored it into a insurance company in a whole life policy, none of that money, at least in this example is, is exposed because you put in 350,000 with the compounding and the growth that comes into the oral binding contract, it has accumulated a cash value and a death benefit that ultimately even though you lose a little bit of value from what is protected, but you actually in terms of your contrib have lost nothing. Yeah.

I also wanted to add Henry, that in terms of terminology, let's say that with GIC there's no death benefit. It's only just in terms of assuming that this depositor passes away in 35 years, then this is how much death benefit, Sorry, this is how much money his family is getting back. There's no death benefit if he passes away prematurely. And also comparing to whole life policy, what happens if the depositor passes away or the insured passes away too soon? Then there is a death benefit which gives a family peace of mind knowing that there is protection in place. There is a windfall of money coming in in terms of anything happens to.

Him and that is paid completely tax free. The other part also even talk about is when your money is stored in a bank.

Like a savings or GIC account, not only is your money potentially locked depending on the terms that you put in, so you may not have complete access to it. And the other part is that interest that you get that interest. Well when you withdraw money out of that account, you interrupt the compounding. So the base of what your money would be ends up being impacted with that compounding. So you it's so the amount of interest that you would get would actually go down. Whereas when we work with these policies here, in participating, a properly designed participating whole life policy there with the accumulating cash value, you actually can access this money via a policy loan from the insurance company while you're, while that policy is actually growing, that the value, the cash value still grow every single day as you're continuing with the, the premium payments, you still can use the money without interrupting that growth.

Awesome. So please comment below this video and let us know where you keep your money in a bank or in your own banking system so that we know who is watching us. And if you learned something new from this video, please like this video and subscribe to.

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