May 26, 2023
Wealthsimple starts offering deposit protections of up to $300k
Canadian banks are in a position of strength: Former bank regulator
Wealthsimple Inc. is tripling its deposit protections for clients with cash accounts.
Last week, the Toronto-based investment platform began to offer "$300,000 in protection from the Canada Deposit Insurance Corporation (CDIC)" for Wealthsimple cash accounts, according to a statement from the company.
Typically, the CDIC, a federal Crown corporation, protects Canadian bank deposits of up to $100,000.
“What's happened recently is that we have been listening to our clients and we've been hearing that there has been interest and need to get this expanded coverage,” Paul Teshima, the chief client experience officer at Wealthsimple, said in a phone interview with BNNBloomberg.ca on Wednesday.
Teshima said that because the platform does not operate like a bank, it was able to extend CDIC coverage limits beyond the typical $100,000 threshold.
Wealthsimple’s move to expand deposit insurance comes after turmoil in the U.S. banking sector, which included the collapse of Silicon Valley Bank.
“This model of stacking deposit coverage isn’t new in Canada,” Hanna Zaidi, Wealthsimple’s chief compliance officer, said in a statement Thursday.
Enhanced deposit insurance has been available to some high-net-worth investors through wealth managers, according to Zaidi.
“Previously, Canadians looking for additional coverage would have to open multiple accounts at CDIC member institutions or hire a wealth manager,” Zaidi said.
In a blog post last week, Wealthsimple stated that it is not a bank or CDIC institution, but partnered with “tier-1 banks and CDIC member institutions,” to offer enhanced deposit protections.
“We spread deposits across multiple institutions on their behalf so they can access up to three times the deposit coverage,” Zaidi said.
In order to launch the new feature, Zaidi said the investment platform worked closely with the CDIC.
“We see this as a vote of confidence in Canada's financial system. We're able to offer this because of how Wealthsimple has been built, allowing us to partner with Schedule 1 Canadian banks,” she said in a follow-up statement Friday.
Laurence Booth, a professor of finance at the University of Toronto, said in a statement Friday that the increased insurance may appeal to some individuals if a panic ensues regarding deposit safety.
Booth said transferring funds into your own bank account is often very simple and “the rest you can move into 90-day T Bills [Treasury Bills] and the residual is covered by existing insurance required of all investment firms.”
Additionally, Booth said the size of Wealthsimple could be a factor behind the decision to broaden protected deposits.
“Probably the reason they are doing this is they are a small operation and need to provide greater assurance to their account holders, whereas the major bank-managed investments don’t need to do this,” he said.
Teshima says he sees demand among clients for a place to hold large amounts of cash.
“There are people who have cash that they want to keep as cash, maybe they're saving for a big purchase, maybe they just got an inheritance or large bonus this year, and they want to have it in the yield-based cash account,” he said.
Teshima said around 80 per cent of cash holders with over $100,000 in their Wealthsimple account are 45 years of age or younger, “so it’s not just the older generation of people with this type of cash.”