Most people consider their bank fixed deposits extremely safe but some recent events in Cyprus (an euro zone country) bust this myth of safety of bank deposits. The Cyprus government has decided to use the depositors’ money in bank account to pay off its debts. Deposits greater than €100,000 were frozen by the government but deposits of up to €100,000 remain protected. This is because deposits in banks up to €100,000 is insured while above €100,000 are uninsured. So the deposit that is insured would be untouched.
If such a thing can happen in Cyprus, the question is can it happen in India and how safe is your deposit with banks?
Here are some facts about your bank deposits in India:
- In case of bank closure, license cancellation or liquidation etc, you can lose the entire amount deposited except the amount which has deposit insurance
- Your deposits and interests up to 1 lakh with banks is insured by Deposit Insurance and Credit Guarantee Corporation (DICGC) which is wholly owned subsidiary of the Reserve Bank of India (RBI)
- All kinds of deposits with banks like fixed deposits, recurring deposits, saving and current account deposits are covered (limited to Rs 1 Lakh per customer per bank)
- The DICGC is liable to pay the depositors the claimed amount within two months of claim receipt
- If you have deposits with more than one bank, the cover will be separate for different accounts
- The cost of deposit insurance premium is borne entirely by the insured bank
- Currently all commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks and cooperative bank are insured
- Deposits of foreign governments, deposits of central and state governments, inter-bank deposits, deposits of the state land development banks with the state co-operative bank is not insured
What should you do?
Given the above situation, you should be careful about choosing your bank.
- The public sector banks are the safest as they are backed by government of India. In case there is some problem with the bank, the government would bail it out in most cases. Remember Government can print currency!
- The bigger private banks are also a safe bet. They are generally too big to fail, as failure of a large bank would lead to domino effect taking a lot of smaller banks with it. Remember the bigger banks like Citibank in US were bailed out while the smaller ones were left to survive.
- Usually smaller co-operative banks have higher risk of license cancellation or closure. So if you must bank with them try to keep your deposit within 1 Lakh limit. If you look in the past, RBI has cancelled licenses of several co-operative banks like Bharuch Nagarik Sahakari Bank Ltd, Chatrapur Co-operative Bank Ltd, Nagari Audyogik Sahakari Bank Niyamit, Ghaziabad Urban Cooperative Bank.
So to be on the safer side, you should diversify your deposits in different banks and bank mainly with bigger well known banks.
Hi Amit,
I am 35 year old. I have an amount of 50L which is currently lying in a FD in HDFC Bank, which is giving me 7.75% return. Since I am in 30% tax bracket already, my actual return on that FD comes out to be 5% or so.
Since my wife is a housewife, I am planning to create a Bank Account in BANDHAN bank in her name, and operate it myself. They are offering 8.25% interest on FD.
1. Could I request you to advice me if that is a wise option?
2. If not, could you please suggest a simple alternative, which doesn’t require regular monitoring? I do not have a high financial literacy. Someone suggested me to invest in Birla Sun Life Debt Fund and just forget it.
Thanks,
Rahul
1. Yes you can invest in any bank FD which offer higher interest rate.
2. Debt Mutual funds are good alternative to FD as they are more tax efficient and have similar payout as bank FD. However you cannot invest and forget. Regular monitoring is required more in Debt funds.
Hi sir dady ka retirement amount hai 20 lack sir me kisme fd kru pls help kro
Dear Amit,
Appreciate of your analysis and responses to citizens pain area questions about their hard earned money.
I have taken VRL and want to invest 35L FD in Deutsche Bank for 5 Yr term as they are offering 8.25%. They claim they are governed by RBI and they operate as per SBI norms. Is it wise and safe to invest with them and should I split as well. Primarily I am look VRL amount to run my monthly.
Your advice would be highly appreciated.
Though Deutsche Bank is foreign bank but is regulated by RBI. I do not see any issue with the fixed deposit. Go ahead and do it
◾The public sector banks are the safest as they are backed by government of India. In case there is some problem with the bank, the government would bail it out in most cases. Remember Government can print currency!
Wonder why Cyprus Govt. did n’t print currency?
Cyprus is part of European unit with Euro as its currency. SO printing currency is not an option for them.
I want to invest 15 lac on IDFC as presently they are giving highest interest rate ie 8.75 p.a. Is it wise decision ? how big this IDFC bank ? Also they are offering MIS which will be directly deposit to my account.
IDFC is the newest bank in India and so it has operations limited to few major cities only. Being new they have to differentiate themselves from existing banks. Offering higher interest rates in one way to do so. But IDFC is safe to bank with so go ahead with your investment.
Public sector Bank PSB are quite safe than private. PSB are having reasonable charges as compare to private.
Private bank attract customers by giving bla bla bla offers but they mostly fake or charge up money.
Also private banks give high fd interest rates as compare psb along with better services which harldy find in PSB.
so people attract toward private.
the top best PSB banks with good fd rates plus service:
1. PUNJAB SIND BANK
2. BANK OF BARODA
3. BANK OF INDIA
4. PNB
5. HDFC
HDFC bank is private sector bank – all others are PSBs. Also most FDs can be done online if you have account with the bank, so personal interaction is very limited these days.
which bank is safest for FD Axis bank or Bandhan Bank
Axis bank
Which one is more safer…SBI or United Bank of India for FD of more than 50 Lacs and why?
SBI and UBI both are owned by Government of India and so it would not let these banks to default on your deposits. But considering the worst case scenario if the government has to choose which one to let default – SBI or UBI. It would save SBI as this is the biggest bank in India and if it goes belly up it would be almost like economy breakdown of India. And a big bank default would almost kill entire banking system of the country.
This is the reason why even in 2008 financial crisis, Citibank even though private entity was saved by public money (USA) as these are “too big too fails” banks.
I have some deposits with Dhanalkshmi bank ltd, also have some money in my savings NRE, as there are some news coming about the profitability and management issues is it safe to continue operations with them or to swap to another bank.
I don’t think you should panic right now. The issue is across lot of banks. You should keep a close watch though.
I want to open fd Rs 7 lak which bank is best. In today’s conditions
Go with any large private bank or government bank – they are the safest. If you want high interest rates – RBL is good choice.
i want 4lakhs fd my wife house wife
Please go ahead and choose the best FD rates as of today.
Want to open FD of 12 Lakhs in DHFL (offering 9.1 % for woman) for 14 months ? Is it Safe ? I have an account in PNB and they are offering 7.5%. FD would be done in name of my wife. She has PAN card and she is not- working. I think there should not be any issue of tax. Which one to choose ? IS DHFL trustable ?
DHFL has AAA credit rating which is the best rating possible. So your investment (especially short-term) is perfectly safe.
Since your wife is non-working, the interest earned would be added to your income and taxed accordingly.
Can I open FD of 25 lacks in India post
Yes there is no maximum limit for Post Office Fixed Deposit Account, so you can open FD of Rs 25 Lakhs with them.
I want to do FD of 25 lacks on RBL or Greater which banks is the safe and greater bank I m already having few fds..both are giving 9% rate let me know please..
As of today RBL is safe and is regulated by RBI. But if you make any huge deposit in any bank you should keep your eyes and ears open for any news [not rumors] which is impacting the bank.
I want to invest 6 lacs in FD. As u mentioned that fd upto 1 lacs is insured. Can I reduce my risk by going for 6 FDs of 1 lac each in same branch?
The insurance on bank deposit is across all branches of bank and across all your deposits. So if you invest Rs 50K each in 3 branches of the bank, still your insurance coverage is Rs 1 lakh.
There are two options to it:
1. You can choose 6 different banks or
2. If you want to use the same bank get account in your name, joint name, etc. So account in Puneet name, Puneet + wife name, wife + Puneet are considered different for deposit insurance. If you use above 3 combinations – you get 3 lakhs insurance, 1 lakh for each 3 entities.
i want to open a fd of rs 10 lacs with RBL Bank. Is it safe?
Yes RBL is small private bank and it’s safe as of today. As the amount is high you should keep your eyes open to any news about RBL in future.