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Are your FDs covered by insurance? A Ziraat Times guide.

Ziraat Times Team Production

Srinagar, June 25: Is your fixed deposit covered by insurance? How important is it for your deposits? By how much and would you really get paid in case a bank collapses?

Ziraat Times here addresses these key questions for its readers with a simple guide:

Fixed deposit (FD) insurance cover is crucial for India’s bank depositors as it provides a safety net in case a bank faces financial distress or collapses. Despite this importance, the coverage rate of insured deposits has been declining, with only 44% of bank deposits being insured as of September 2023, down from 49% in September 2022 and 50.9% in both September 2021 and 2020, according to RBI data.

Protection Level for Fixed Deposits

In India, the Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance coverage for bank deposits, including savings accounts, current accounts, fixed deposits, and recurring deposits. Each depositor in a bank is insured up to a maximum of ₹5 lakh for both principal and interest as of 2020. This means that if a bank fails, depositors are guaranteed to receive up to ₹5 lakh of their total deposits in that bank.

Coverage Decline and Its Implications

The decline in the proportion of insured deposits highlights a growing gap in depositor protection. This trend may be attributed to the increase in the total value of deposits outpacing the insurance coverage limits, which have not been adjusted correspondingly.

Options for Deposit Insurance

Depositors in India have fewer  options regarding deposit insurance as it is centrally managed by DICGC. However, they can maximize their insurance coverage by:

1. Distributing Deposits: Spreading their deposits across multiple banks can ensure that each account benefits from the ₹5 lakh insurance coverage limit.

2. Joint Accounts: Utilizing joint accounts can provide additional coverage, as each holder’s share in the account is insured separately.

3. Regular Monitoring: Keeping abreast of the financial health of banks and choosing well-rated and financially stable banks to minimize risks.

Payout in Case of Bank Collapse

If a bank collapses, the DICGC guarantees that depositors will be paid up to ₹5 lakh within two months of receiving a valid claim. While this mechanism provides a degree of assurance, it is limited to the ₹5 lakh cap, meaning depositors with higher balances risk losing the uninsured portion of their deposits.

So What Should Depositors Do?

1. Stay Informed: Regularly check the financial stability and ratings of banks where deposits are held.

2. Diversify Holdings: Spread deposits across multiple banks and accounts to optimize insurance coverage.

3. Monitor Policy Changes: Stay updated on any changes in the deposit insurance framework or limits set by DICGC.

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