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The coverage limits imposed by Canada Deposit Insurance Corp. never look so skimpy as when you’ve sold a house and need safe parking for the proceeds.

CDIC covers up to $100,000 in principal and interest in each of seven account categories, including deposits held in one name, in joint accounts and in a tax-free savings account. With a $603,344 national average resale house price nationally in November, it’s quite likely that someone who sells a house and wants to put the money in savings will not get CDIC protection for the entire amount at one bank.

A reader recently wondered about this balance of risk in exceeding CDIC limits and convenience of having money in one bank account. “How concerned should I be that CDIC only insures up to $100,000?” he asked. “I recently sold my house and want to put the proceeds in a high interest savings account, but I’d rather not have to open a separate account at a different institution for each $100,000.”

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The risk of losing money in a savings account because a Big Six bank collapsed is very small, but not zero. It’s a personal judgment call whether the safety of dividing up the money into chunks and parcelling them out to separate banks is worth the effort.

But there’s another consideration here – the interest rate you’re getting from your bank. Big banks pay close to zero right now, whereas alternative banks paid as much as 1 per cent to 1.8 per cent as of mid-December. With proceeds of, let’s say, $500,000 from the sale of a home, 1.5-per-cent interest gets you $7,500 a year before taxes.

There are enough CDIC-member alternative banks with competitive rates to absorb the multiple deposits of $100,000 or so that would be generated by the sale of an average-price home. The inconvenience of managing these accounts is the price you pay for better rates and confidence that the risk of dealing with smaller financial institutions has been contained.

The reader who asked where to put the proceeds for a home sale is a resident of Ontario, where credit union deposits are insured for up to $250,000 by the Deposit Insurance Corp. of Ontario. There’s unlimited coverage in registered accounts, including TFSAs.

In other provinces, notably Manitoba (home to several online banks owned by credit unions), there is no limit on deposit insurance coverage. Read my take on how this Manitoba coverage compares with CDIC, online at

A question for home sellers: Would it bother you to park half-a-million dollars or more with a big bank and get next to no interest while it lends the money out for a much higher rate? Thought so. That’s why the preferred approach for home sellers who want to stash cash safely is to suck it up and use a bunch of alternative banks. It’s worth the effort to get deposit insurance and a better rate.

-- Rob Carrick, personal finance columnist

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This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Leon’s Furniture Ltd. (LNF-T) Home furnishing stores have experienced robust demand driven by consumers focusing on their homes during the pandemic. So it may not be all that surprising that Leon’s hit an all-time high this month. Meanwhile, analysts have been hiking their price targets and the company has boosted its dividend payout. Jennifer Dowty looks at the investment case for the stock. (for subscribers)

The Rundown

How to approach investing in 2021 for a very different world

Economist David Rosenberg says his outlook for the economy in 2021 may just be the easiest one to make in his 35 years in the forecasting business. There will be a post-pandemic spending boom, in a world that is going to look a lot different than it ever did before. Much of this is already priced into every global financial asset. But he’s still bullish on certain areas of the market that are likely to thrive. Read what Mr. Rosenberg expects for the year ahead. (for subscribers)

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BlackRock’s chief strategist for Canada on how to invest for 2021 – and why it’s time to rethink the traditional 60-40 portfolio

In 2020, major stock market indexes around the world climbed a wall of worry – exhibiting remarkable resilience. The S&P/TSX Composite Index is trading just 2 per cent less than its record high and is closing out the year with an impressive broad-based rally of 9 per cent so far in the fourth quarter. Will stocks continue to charge higher next year on the reopening of economies worldwide? For his thoughts on this question, and several others, Jennifer Dowty spoke with Kurt Reiman, BlackRock’s chief investment strategist for Canada. (for subscribers)

Retail traders leave Wall Street for dust in 2020 stocks rally

Retail traders have ridden 2020′s stock market rally better than the professionals, with their most popular picks outperforming market indexes and well-resourced investors such as hedge funds. Online trading platforms have reported a retail rush since the COVID-19 pandemic hit markets in March, with near-zero interest rates and a roaring rebound luring a new generation of stuck-at-home traders wanting to sharpen their skills on stocks. And while the scramble into fast-growing but highly-valued stocks has echoes of the 2000 dotcom bubble, plentiful cheap cash means retail traders do not yet look ready to cash in. Tommy Wilkes and Thyagaraju Adinarayan of Reuters reports. (for subscribers)

Also see: As thousands of Canadians flock to day trading during lockdown, experts urge caution

Tesla heads to the S&P after meteoric rise and some investors want more

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Is it too late to join the Tesla party? Shares of the electric vehicle maker are up nearly 700% over the last year, a meteoric rise that has punished short-sellers and turned it into the world’s most highly-valued automaker. The company’s formal entry into the S&P 500 on Monday is expected to generate unprecedented activity near the close of trade on Friday as index-tracking funds load up on shares so their portfolios correctly reflect the index. Still, Wall Street is divided over whether Tesla’s days of heady gains are numbered. David Randall of Reuters reports. (for subscribers)

Reopening rally? Speculative bubble? These days, it’s hard to tell

Surging U.S. stocks are stretching equity valuations near their highest levels in years, leaving investors to determine whether the rally signals a coming economic rebound or an asset price bubble in the midst of a global pandemic. Lewis Krauskopf takes a look at the various bull and bear views. (for everyone)

A tale of two crises - metals in the year of COVID-19

It’s been a tumultuous year for industrial metal markets, both the worst of times and the best of times. Prices collapsed during the first three months of 2020 as first China, then the rest of the world, went into COVID-19 lockdown, bringing manufacturing activity to a near standstill. The subsequent rebound has been nothing short of spectacular with copper, bellwether of the pack, currently trading at its highest level since 2013. Echoes of the Global Financial Crisis ten years ago ring loud. Once again, it seems, China has come to the rescue thanks to a massive stimulus package flowing down the metals-heavy channels of construction and infrastructure. But there are two critical differences between now and then, and both of them are bullish. Andy Home of Reuters has this analysis. (for subscribers)

Why small cap investing has underperformed over the past decade - and what Canadian investors can do about it

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In theory, an investment strategy with a focus on small cap and value stocks should result in returns superior to the major market indexes. After all, smaller companies have greater flexibility to respond to opportunity or adversity and their growth runway is much longer once they have a winning product or service. Plus, a screen for value should reduce the negative impact of torpedo stocks that can unexpectedly blow a hole in the portfolio returns. So much much for the theory. The reality for the past decade is that both of these factors have been a drag on portfolio returns. Robert Tattersall explains why, and has some advice for Canadian investors on how to approach small cap investing going forward. (for everyone)

Others (for subscribers)

‘The set-up for 2021 is strong’: Desjardins Securities reveals its top TSX stock picks for the new year

The week’s most oversold and overbought stocks on the TSX

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

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Thursday’s Insider Report: CEO invests over $3-million in this stock

Number Cruncher: Ten tech stocks that continue upside momentum after strong year

Number Cruncher: Why these 12 TSX stocks with growing cash flow and earnings might not be on your radar

Cryptocurrency exchange Coinbase files with U.S. regulators to go public

Ask Globe Investor

Question: I will be contributing $6,000 to my TFSA in early January. If I borrow to make my contribution, is the interest on the loan tax-deductible? If not, should I purchase $6,000 worth of stock in my non-registered account, using my line of credit, then transfer the stock in kind into my TFSA?

Answer: If you borrow money to invest in a TFSA or other registered account, the interest is not tax-deductible. If you borrow to invest in a non-registered account, the interest is deductible (as long as the investment generates income or there is a reasonable expectation that it will do so in the future). However, interest would cease to be deductible once you transfer the shares to your TFSA.

--John Heinzl

What’s up in the days ahead

Are Canadian banks poised to increase their dividend payouts next year after this year’s pause due to the pandemic? David Berman will share some insight.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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