Everybody who has a bank account knows that it is insured for Rs. 5 lacs by the Deposit Insurance and Credit Guarantee cover.
This cover is applicable to all commercial banks, including branches of foreign banks functioning in India, local area banks and regional rural banks.
One would expect that as soon as you open an account, the bank would give you a note explaining how the insurance works. But nobody ever tells you how this is calculated. Here’s how.
How is the ‘Ownership’ determined?
‘Ownership’ is determined by the names on the account and also the sequence of these names. Say Suresh and Ranjana are husband and wife. They can have accounts in a bank with sequence of names like these:
- Suresh only and Ranjana as nominee.
- Suresh first and Ranjana as second name.
- Ranjana only and Suresh as nominee.
- Ranjana first and Suresh as second.
Each of the ‘ownership’ mode is covered for 5 lacs. So, in total, their bank assets would be covered for 20 lacs!
How is the ‘Amount’ calculated?
Now, for the bad news – as far as the ownership ‘mode’ is concerned, it covers all ‘relationships’ with the bank. This means it covers savings accounts, current accounts, FDs, Recurring deposits, etc – across all branches of the same bank. So if you have money in savings accounts and FDs in different branches of the bank, under the same sequence of names, all of them will be insured for a total of 5 lacs only!
When is the money paid out?
The insurance money is paid out around 2 months after the bank is liquidated. The PMC bank has not been liquidated even after so many months after the problems it had. In short, the RBI will take its own sweet time to calculate the amount payable to each ‘owner’ and also to liquidate the bank.
So, what to do? Choose two banks and divide your money between these two – with the stronger one getting most of the funds, with multiple accounts in each. Consider debt mutual funds – long term ones should give 6.5 to 7% returns and they are more tax efficient than bank FDs.
Take care and be safe.
- If you need help on choosing and investing in debt mutual funds, please contact me.
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- This is the source from where I got the above information from