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Deposit insurance: How safe is your money in the bank?

FE Bureau
If, however, the principal amount in that account was Rs 1 lakh, the accrued interest would not be insured, not because it was interest but because that was the amount over the insurance limit. (Illustration: SHYAM Kumar Prasad)

Each bank customer's deposits in a bank is insured up to a maximum of Rs 1 lakh for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank's licence. Deposit Insurance and Credit Guarantee Corporation (DICGC) while registering the banks as insured banks, provides them with leaflets that inform account-holders on the protection given by the corporation to the depositors of the insured banks.

The deposits kept in different branches of a bank are aggregated for the purpose of insurance cover and a maximum amount up to Rs 1 lakh is paid. For example, if an individual had an account with a principal amount of Rs 95,000 plus accrued interest of Rs 4,000, the total amount insured by the DICGC would be Rs 99,000. If, however, the principal amount in that account was Rs 1 lakh, the accrued interest would not be insured, not because it was interest but because that was the amount over the insurance limit.

Type of ownership
All funds held in the same type of ownership at the same bank are added together before deposit insurance is determined. If the funds are in different types of ownership or are deposited in separate banks they would then be separately insured. If a person has deposits with more than one bank, deposit insurance coverage limit is applied separately to the deposits in each bank.

If an individual opens more than one deposit account in one or more branches of a bank, for example, one or more savings/current account and one or more fixed/recurring deposit accounts, all these are considered as accounts held in the same capacity and in the same right. Therefore, the balances in all these accounts are aggregated and insurance cover is available up to Rs 1 lakh.

If the same account-holder also opens other deposit accounts in his capacity as a partner of a firm or guardian of a minor or director of a company or trustee of a trust or a joint account, say with his wife in one or more branches of the bank, then such accounts are considered as held in different capacity and different right. Accordingly, such deposits accounts will also enjoy the insurance cover up to Rs 1 lakh separately.

If more than one deposit account (savings, current, recurring or fixed deposit) are jointly held by individuals in one or more branch of a bank; say, three individuals A, B & C held more than one joint deposit accounts in which their names appear in the same order, then all these accounts are considered as held in the same capacity and in the same right. Accordingly, balances held in all these accounts will be aggregated for the purpose of determining the insured amount within the limit of Rs 1 lakh.

However, if individuals open more than one joint accounts in which their names are not in the same order for example, A, B and C; C, B and A; C, A and B; A, C and B; or group of persons are different; say, A, B and C and A, B and D, etc., then, the deposits held in these joint accounts are considered as held in different capacity and different right. Accordingly, insurance cover will be available separately up to Rs 1 lakh to every such joint account where the names appearing in different order or names are different.

Source: Tax Guru