But what if we tell you that the entire proportion may not be safe? Shocked! While there hasn’t been a case of a bank going bust since 1961, banks are only liable to give you Rs. 1 lakh in case of any unfortunate event. That means if you have more than Rs. 1 lakh in one bank, in case of any unfortunate event, the rest of your money will go for a toss.
While there are absolutely slim chances of that taking place, it is always better to know how things work.
You must have got a term insurance or health insurance to safeguard the life of yourself and your loved ones. In this case, the insurance acts as a backup. Similarly, bank deposits are also insured. But just like normal term insurance where you will receive Rs.50 lakh or Rs.1 crore, depending on maturity amount, in case of bank insurance, banks pay you Rs.1 lakh if the bank goes bankrupt. So, if you have Rs. 1 crore in bank, Rs. 1 lakh is insured.
Deposit Insurance and Credit Guarantee Corporation, a wholly subsidiary of the Reserve Bank of India(RBI) is an entity responsible for the insurance of our deposits.
Most of the banks including commercial banks, foreign banks, small finance banks, cooperative banks have this facility. Visit the bank’s website to know whether the bank deposits are insured or not. You can also ask your bank officials in case of doubt.
The insured limit stays the same across all the branches. That means that even if you have Rs. 50,000 in three different bank branches of the same bank, you are only eligible to receive for Rs. 1 lakh and not Rs. 1.5 lakh.
Also, the deposits held in the same capacity and same right are added and insurance cover is available up to Rs. 1 lakh.
If an individual opens more than one deposit account in one or more branches of a bank in different capacities, say one bank account as a partner in a firm or director in a firm, then such deposits will enjoy the insurance cover of Rs. 1 lakh each.
However, the deposits are in more than one bank, deposit insurance of Rs. 1 lakh will be applicable for each bank account.
Now that you are aware of the insurance, you must be wondering whether the insurance is limited to just the deposits or the interest as well. Well, the Rs.1 lakh is agnostic. It does not consider whether the total deposits lying in your accounts is the interest or principal.
E.g. If you have Rs.60,000 as your principal and received Rs.10,000 as interest, the bank will pay you Rs.70,000. On the other hand, if you have Rs. 1 lakh as fixed deposits and received Rs. 20,000 as interest, your deposits of Rs. 1 lakh is insured.
This facility aims to protect the customer’s hard-earned money. While the insurance amount is not much, it is still better than equity markets. When you invest in equity markets, you don’t have a cushion to fall back on.
So, next time someone tells you that putting money in fixed deposits is extremely safe, you can tell them about it.
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