Home >Money >Personal Finance >What happens to your FDs, deposits if bank fails? Higher insurance in force now

Just days after Finance Minister Nirmala Sitharaman in Budget 2020 proposed an increase in insurance amount for depositors in case of bank failure, the RBI has announced an increase in insurance cover to 5 lakh per depositor, from 1 lakh. The enhanced limit came into effect from 4th February. Under this scheme, offered by Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the Reserve Bank of India, in case of an unlikely bank failure deposits up to 1 lakh is insured and paid back to the depositor.

The higher limit comes in the wake of crisis at Mumbai-based urban cooperative bank PMC Bank.

"With a view to providing a greater measure of protection to depositors in banks the Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the Reserve Bank of India, has raised the limit of insurance cover for depositors in insured banks from the present level of 1 lakh to 5 lakh per depositor with effect from February 4, 2020 with the approval of Government of India," the RBI said in a statement.

Here are 5 things to know about this scheme:

1) All types of bank deposits including savings, fixed and recurring, are covered under the scheme. The 5 lakh limit covers both principal and interest amount.

2) The Deposit Insurance and Credit Guarantee Corporation does not directly charge any premium from bank depositors but banks pay a premium for the cover.

3) It is to be noted that this deposit guarantee is invoked only if the bank gets closed. It cannot be released if the bank is a going concern.

4) All deposits maintained by the depositor across all branches of a particular failed bank are clubbed. Or in other words, if a person keeps deposits in different branches of a bank, they are paid a maximum of up to 5 lakh only on the aggregate amount.

5) Deposits maintained with different banks are not clubbed. The deposit insurance scheme covers all banks operating in India including private sector, co-operative and even branches of foreign banks in India.

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