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A misreading of the rules for deposit insurance may be denying some online investors full protection for the money they’re putting into guaranteed investment certificates.

One of the benefits of buying guaranteed investment certificates from an online broker is that you have a selection of many third-party issuers, including both big banks and alternative banks. It’s quite possible to end up creating a five-year GIC ladder in your account with different issuers for terms of one through five years.

Quiz question: If the five different GIC issuers are members of Canada Deposit Insurance Corp., what’s the maximum amount of coverage you’d have?

Answer: $100,000 in combined principal and interest for each of the five GICs.

Some recent reader queries about deposit insurance suggest there’s a bit of confusion about how the $100,000 limit applies if you’re dealing with multiple GIC issuers within the same investment account, be it a non-registered account, a tax-free savings account or a registered retirement account.

You do not have to limit the aggregate total invested in all your GICs from different issuers to $100,000 in principal interest. Each individual GIC in your account, provided it’s from a different bank, gets its own $100,000 limit. “A GIC from Bank A in your TFSA would be covered separately from a GIC from Bank B that is also in your TFSA, for a total of $200,000 coverage,” CDIC said in an emailed response to a question.

If you’ve used an online broker to buy GICs, you’ll know that one particular bank sometimes shows up with the top rates for several different terms. In this case, you may need to accept a lesser rate and go with a competitor for some terms to ensure each GIC in your account has full coverage.

For example, HomeEquity Bank had the best three- four- and five-year rates on one online broker’s platform recently. You could pick HomeEquity for three years, then look for next-best rates for four and five years.

Right now, rates are competitive enough that there shouldn’t be much of a gap between the banks offering top rates. For example, HomeEquity Bank offered 4.73 per cent for four years on that online broker’s GIC order page, with General Bank of Canada at 4.65 per cent and Versabank at 4.6 per cent. HomeEquity, Versbank and General Bank are all CDIC members.

-- Rob Carrick, personal finance columnist

Also see:

Rob Carrick: Why take on stock market risk if you can reach your goals with low-risk GICs and bonds?

Ian McGugan: What they won’t tell you about GICs

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