House Hiatus ... where to park a large sum temporarily?

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strathglass
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House Hiatus ... where to park a large sum temporarily?

Post by strathglass »

Come retirement time, my wife and I may wish to sell our house, but not buy a new place immediately ... waiting maybe 9-24 months before settling down again.
(In the meantime, we would rent and do some travelling.)

The question is, how does one safely hold the proceeds from the house sale for that period of time?
That would be somewhere from 500k to a million, and CDIC insurance maxes out at $100k.
Just looking for best practices for a scenario like this.

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Re: House Hiatus ... where to park a large sum temporarily?

Post by like_to_retire »

That would be somewhere from 500k to a million, and CDIC insurance maxes out at $100k.
Yes, 100K per institution.

Take TD Waterhouse for example. They sell GIC's for Manulife Bank, Home Trust Company, TD Mortgage, AGF Trust, HSBC Bank, BMO, BNS, Equitable Trust, Canadian Tire Bank, TD Bank, Canadian Western Bank, TD Pacific, Canada Trust - and each would give you $100K CDIC insurance at one brokerage alone. That's over a million in insurance without leaving your discount broker.

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Re: House Hiatus ... where to park a large sum temporarily?

Post by Bylo Selhi »

2. Within an institution you can get $300k of insurance with one account in your name, another in your spouse's name and a third held jointly.
3. Most banks have multiple separately-insured entities. For example, BNS has ScotiaBank, ScotiaMortgage, Montreal Trust and National Trust. (And in a way also TINGerine and iTrade.) You can buy short term GICs from any/all of them.

Using 2. and 3. you could have $1.2M at one bank all fully CDIC insured.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by AltaRed »

Niggly correction. iTrade sells GICs but does not have their own.... so only $1million per couple in the BNS family. :lol: :P Unless you count Hollis (Dundee) bank ISA too but not clear to me how 'separate' the ISA is.

But yes, it is rather easy to cover $1-2million in cash with CDIC insurance.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by Bylo Selhi »

Niggly corrections ;)
iTrade sells GICs but does not have their own
Yabbut as like_to_retire mentioned as 1., discount brokers offer GICs and HISAs(*) from a variety of institutions so you can stash multiples of $100k at the same broker.
only $1million per couple in the BNS family
Check yer 'rithmetic. SB, SM, MT, NT are four entities. Self, spouse and joint are three separate "individuals." So 4 x 3 x $100k = $1.2M

(*) Some discount brokers even have several distinct HISA securities, TDB8150, TDB8155, TDB8159 for TDW, and RBF2010, RBF2020, RBF2030, RBF2040 at RBCDI, each of which qualify for separate CDIC coverage.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by Peculiar_Investor »

A follow-up to Bylo's post, more information from our wiki, High-interest savings accounts, which lists the various discount brokerage HISAs and other considerations/options.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by patriot1 »

Almost goes without saying you should use any unused TFSA contribution room.

It also may or may not sense to use any unused RRSP contribution room and then HBP (see other thread).

Note also that the CDIC insurance limits apply separately to registered accounts.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by strathglass »

Lots of great info from everyone ... thanks.

Bottom line: forgot that CDIC insurance "resets" across accounts - RRSP vs. non-registered; single vs. joint accounts.
And I didn't realize there were so many options at any one institution.
So it looks like it is not such a big issue to deal with!
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Re: House Hiatus ... where to park a large sum temporarily?

Post by Flaccidsteele »

If an individual had $1m in stock in a single non-reg brokerage account, what is the best way to get CDIC insurance coverage for all of it? Would I create 10 non-reg brokerage accounts with other institutions and transfer stock in-kind?

That seems like a PITA.
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Re: House Hiatus ... where to park a large sum temporarily?

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Flaccidsteele wrote:If an individual had $1m in stock in a single non-reg brokerage account, what is the best way to get CDIC insurance coverage for all of it? Would I create 10 non-reg brokerage accounts with other institutions and transfer stock in-kind?

That seems like a PITA.
CDIC doesn't cover stocks.
From the CDIC web site:
CDIC insures most — but not all — savings.
...
Accounts and products NOT insured by CDIC:

mutual funds and stocks
GICs and other term deposits with a date to maturity of more than 5 years
bonds
Treasury bills
CDIC does NOT insure any accounts or products in U.S. dollars or other foreign currency.

CDIC does NOT insure any accounts or products held in banks or other institutions that are NOT CDIC members.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by Bylo Selhi »

Flaccidsteele wrote:If an individual had $1m in stock in a single non-reg brokerage account
First, as strathglass stated, this isn't a CDIC insured account.

Most if not all Canadian brokers are members of Canadian Investor Protection Fund (CIPF) and offer $1M insurance "if you suffer a financial loss because the Member cannot return the property in your account to you. Such financial loss must be caused by the insolvency of the Member." Such a situation might arise if the broker becomes a victim of employee malfeasance or a major hacking where assets are stolen, the broker is unable to make clients whole and thus declares bankruptcy.

N.B. This coverage does not apply to the stocks held by the brokerage on your behalf, e.g. if you own $1M of BCE and they go bust.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by Flaccidsteele »

Thanks strathglass and Bylo. Just two more questions:

1. With regards to CIPF insurance, you mention that Canadian brokers are members of the CIPF and offer $1m insurance. Does this mean that I need to ask for the insurance or do I have it because I opened up the non-reg account?

2. Also if the non-reg account is over $1m, say $2m, to get CIPF insurance I would just have to split the stock in-kind between two Canadian brokers who are members of the CIPF?

I apologize for taking this thread OT. Thanks again. Much appreciated.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by AltaRed »

1. It is automatic much like CDIC would be for a bank account.

2. The $1 million CIPF is based on aggregate market value of securities in the account. It would be a matter of distributing assets across enough brokers to keep each account value under $1 million. I would be surprised if many investors actually split up accounts specifically for that reason, especially if with the big 5 or 6 big bank brokerages.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by Flaccidsteele »

AltaRed wrote:I would be surprised if many investors actually split up accounts specifically for that reason, especially if with the big 5 or 6 big bank brokerages.
Because the risk is low or because it's a PITA or both? Or something else?
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Re: House Hiatus ... where to park a large sum temporarily?

Post by Bylo Selhi »

AltaRed wrote:I would be surprised if many investors actually split up accounts specifically for that reason, especially if with the big 5 or 6 big bank brokerages.
Two questions:

1. [on the off-topic] If the brokerage subsidiary of a Big Bank were to become insolvent, what legal obligation would their owner have to bail them out? (They would have a "moral" obligation and Ottawa might have to apply some "moral suasion", etc. but that's a separate matter.) Would the owning bank's assets be at risk?

2. [back on the original topic] There are lots of posts and even entire threads on CDIC coverage and on how to game that $100k limit. I can understand going to all this effort if one has large deposits at small institutions like Peoples Trust. But how likely is a Big Bank going to be unable to repay depositors? And how likely is Ottawa going to stand by idly as the CDIC fund gets depleted without stepping in? If the auto industry is so vital to the economy that a "conservative" government stepped in to bail it out, is it at all conceivable that Ottawa would let a Big Bank fail? And if things were so bad (asteroid strikes the planet, nuclear war, aliens decide to run a worm hole in our neighbourhood, etc.) that they couldn't, does anyone think the loss of $100k, or even $1M, would be anywhere near the top of their priority list?
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Re: House Hiatus ... where to park a large sum temporarily?

Post by AltaRed »

Your second response helps answer the first. While I agree there may not be any legal obligation, if the discount brokerage of any of the big 5 banks went insolvent, it would be a reputational disaster for the big bank to let it fail. I see CIPF protection as being primarily protection against fraud and similar shenanigans.

I suspect those with tens of millions in financial assets do not try to spread their worth across several brokerages. Since there are members here with $3+ million in financial assets, I wonder what they do.....
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Re: House Hiatus ... where to park a large sum temporarily?

Post by parvus »

Bylo Selhi wrote:
AltaRed wrote:I would be surprised if many investors actually split up accounts specifically for that reason, especially if with the big 5 or 6 big bank brokerages.
Two questions:

1. [on the off-topic] If the brokerage subsidiary of a Big Bank were to become insolvent, what legal obligation would their owner have to bail them out? (They would have a "moral" obligation and Ottawa might have to apply some "moral suasion", etc. but that's a separate matter.) Would the owning bank's assets be at risk?
CIPF only ensures your accounts are safe against the brokerage using them as collateral for its own endeavours or capital requirements. On the one hand, if the brokerage goes bankrupt, but has kept fully segregated accounts, it ought to be easy to transfer those accounts to another institution -- as happened with the life policies and annuities bought by other lifecos after the provincial overstretch of Confederation Life.

On the other hand, if client accounts and capital accounts are mingled -- and they're not supposed to be, but securities regulators are less an Argus than a Johnny-come-lately -- it can take years to settle the estate.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by Bylo Selhi »

parvus wrote:CIPF only ensures your accounts are safe against the brokerage using them as collateral for its own endeavours or capital requirements. On the one hand, if the brokerage goes bankrupt, but has kept fully segregated accounts, it ought to be easy to transfer those accounts to another institution -- as happened with the life policies and annuities bought by other lifecos after the provincial overstretch of Confederation Life.
Yes of course. I'd assumed that client assets are [supposed to be] segregated. The situation I'm concerned with is insolvency as the result of management incompetence, employee malfeasance and the like where that turns out not to be the case.
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Re: House Hiatus ... where to park a large sum temporarily?

Post by parvus »

There were a few such bucket-shop "broker-dealer" cases in Canada in the late 1990s, until the securities commissions delisted the designation and forced everyone to become IDA (now IIRCOC) members, as investment dealers, and thus forced to contribute to CIPF. By then, the bucket shops had gone out of business -- or into bankruptcy.

<digression>
The Wolf of Wall Street, like Boiler Room before it, is about bucket shops, not the chicanery that may happen in the capital markets divisions of the investment banks. </digression>

Not that I'm sanguine about regulation. Unregistered boiler rooms turn up all the time -- and there's no protection there, since as non-registrants, they were never part of CIPF in the first place.

To answer the question about the banks, undoubtedly they would find the money secure the capital ratios of their investment-dealer subsidiaries. That said, not a few mutual fund dealers have gone under (without client loss) thanks to inadequate capital.
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