For depositors, especially senior citizens, it is important to know how their entire deposits can get a guaranteed cover. Read on for details.
Rising interest rates in 2023 have made fixed deposits a popular investment avenue once again. While fixed deposits are considered safe, not everything you invest in FD is guaranteed. However, there is a way in which all your money in bank FDs can enjoy a guarantee of the RBI. For depositors, especially senior citizens, it is important to know how their entire deposits can get a guaranteed cover. Read on for details.
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For senior citizens and other fixed deposit investors, RBI’s Deposit Insurance and Credit Guarantee Corporation (DICGC) rules provide a safety net. As per the DICGC rules, principal amount and interest up to Rs 5 lakh are covered. What this means is that in case the bank fails, then DICGC cover will come into effect and ensure that you get back up to Rs 5 lakh (including principal+interest).
For example, if you have deposited Rs 2 lakh at 8.5% interest for five years, you will get Rs 3.04 lakh (Rs 2 lakh principal + Rs 1.04 lakh interest) after five years. Even if the bank fails after five years, this Rs 3.04 lakh will be given back to you as it is below the DICGC cover limit.
However, if you have deposited a higher amount, say Rs 4 lakh at 8.5% interest for 5 years, then all your money will not be returned if the bank fails. In this case, after five years, you will be eligible to get Rs 6.09 lakh (Rs 4 lakh principal + Rs 2.09 lakh interest). If the bank fails after 5 years, you will get only Rs 5 lakh back.
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How to ensure full guarantee of amounts above Rs 5 lakh
One way to ensure that all your fixed deposits are 100% guaranteed is to have separate FD accounts in different banks in such a way that none of the accounts has more than Rs 5 lakh as principal+interest at any point of time.
DICGC rules cover separate bank accounts individually. Therefore, you can invest in a way that the sum of principal and interest is not more than Rs 5 lakh in one bank.
The DICGC rules cover all scheduled banks including small finance banks. However, corporate FD schemes are not covered.
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DICGC insures principal and interest up to Rs 5 lakh. In case the principal amount is already Rs 5 lakh then the interest will not be covered as it is above the specified limit. Therefore, if you want a full guarantee on your interest income also, you should avoid doing a direct FD of Rs 5 lakh in one bank.
Also, according to the RBI website, all funds held in the same type of ownership at the same bank are added together before deposit insurance is determined. In case the funds are in different types of ownership or are deposited into separate banks then they are separately insured.
