When it comes to safeguarding your hard-earned savings, understanding deposit insurance is crucial. Many depositors often wonder whether their funds across different banks are insured separately. One important aspect often overlooked is deposit insurance, which protects your funds in case of unforeseen circumstances. But how does this insurance work across multiple banks? Understanding the nuances can help you make informed decisions and better safeguard your finances.
What is Deposit Insurance and Credit Guarantee Corporation (DICGC)
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of the Reserve Bank of India (RBI) that provides deposit insurance to bank depositors. Its main purpose is to protect depositors’ funds in case a bank fails or becomes insolvent.
What does the DICGC insure?
The DICGC provides insurance for a variety of deposits, including savings, fixed, current, and recurring deposits. However, the following types of deposits are not covered:
- Deposits from foreign governments
- Deposits from Central or State governments
- Inter-bank deposits
- Deposits of State Land Development Banks with State co-operative banks
- Deposits received from outside India
- Any amounts specifically exempted by the DICGC with prior approval from the Reserve Bank of India
Who pays the cost of deposit insurance?
The deposit insurance premium is borne entirely by the insured bank.
Are your deposits in different banks separately insured?
Yes, deposits in different banks are separately insured, but this depends on the rules set by the deposit insurance authority in your country.
The good news is, that in most countries, including India, deposit insurance coverage applies separately to each bank. This means that if you hold deposits in multiple banks, each account is independently protected under the deposit insurance scheme, providing you with peace of mind and financial security.
In India, for instance, DICGC insures bank deposits. Each depositor in a bank is insured up to Rs 5 lakh for both principal and interest. Importantly, this insurance applies separately to each bank. Therefore, if you have deposits in two different banks, you are covered up to Rs 5 lakh in each of them.
So, deposits in multiple banks would have separate coverage under the deposit insurance scheme.
Which banks are insured by DICGC?
Commercial Banks: All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC.
Cooperative Banks: All State, Central and Primary cooperative banks, also called urban cooperative banks, functioning in States / Union Territories that have amended the local Cooperative Societies Act empowering the Reserve Bank of India (RBI) to order the Registrar of Cooperative Societies of the State / Union Territory to wind up a cooperative bank or to supersede its committee of management and requiring the Registrar not to take any action regarding winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the RBI are covered under the Deposit Insurance Scheme. At present all co-operative banks are covered by the DICGC.
Primary cooperative societies are not insured by the DICGC.
Does the DICGC insure only the principal on an account or both principal and accrued interest?
The DICGC covers both the principal and interest up to a maximum amount of Rs 5 lakh. For example, if an individual has an account with a principal of Rs 4,95,000 and accrued interest of Rs 4,000, the total insured amount would be Rs 4,99,000. However, if the principal alone reaches Rs 5 lakh, any interest accrued beyond this amount would not be covered, not due to its nature as interest, but because the total exceeds the insurance limit.
Can deposit insurance be increased by splitting funds into several different accounts at the same bank?
No, all funds held under the same ownership type at the same bank are combined when determining deposit insurance coverage. To increase insurance coverage, you would need to either deposit funds into accounts under different ownership types or spread them across different banks, as each will be insured separately.
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