Bank deposits are an indispensable form of financial saving for all Indian households. Naturally, concerns rise each time a bank goes under, regardless of whether it’s an Indian or a foreign bank like the recent collapse of US-based Silicon Valley Bank.
Adding to depositors’ nervousness is the limited amount of cover at just R5 lakh. But, with extra paperwork and a little intelligent saving, you can make the most of it. For instance, a family of three can effortlessly deposit up to R 55 lakh (or more) and not lose a penny even if the bank goes belly up. The amount will be slightly less for a family of two, but goes up substantially for a four-member household. Here’s how.
All one needs to do is to open both individual and joint accounts with family members. As an individual, even if you have different accounts (savings, term, recurring, current), since they are held in the same capacity and in the same right, the maximum cover is limited to R5 lakh. But if you open accounts in different capacities like guardian of a minor, or a joint account with family members, each will be entitled for an insurance cover of R5 lakh. The key is to ensure that the amount in each deposit account doesn’t exceed R5 lakh, including interest earned. Get your math correctly, split savings so that each deposit doesn’t exceed R5 lakh to avoid losing out in case of a bank run.
For instance, if you have an individual account with a R5 lakh savings, another R5 lakh term deposit with joint ownership with your spouse and yet another R5 lakh deposit with your children as the primary account holder and you as the guardian, then each of these deposits, magically, will be entitled for R5 lakh insurance cover. Typically, banks allow three joint account holders, which means a household of three can have 11 different ownership patterns taking the maximum amount of deposits to R55 lakh! Now comes the icing on the cake.
These 11 deposit accounts are with just one bank and one can open accounts with more than one bank to maximize the safety net. Deposit insurance coverage limit is applied separately to deposits in each bank and as long as you don’t open multiple accounts in different branches of the same bank, but with different banks, the deposit cover will apply accordingly.
Point to note: If you owe dues to the bank in lieu of a loan, your money will be deducted from the insurance before your final settlement.