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How safe is your Bank Fixed Deposit?

How safe is your Bank Fixed Deposit

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.

Amit

Hi Readers! I am Amit, the mind behind Apnaplan.com I am MBA from NITIE, Mumbai and BIT from Delhi University. This blog is my online diary where I write about my tryst with my investment decisions. In the 400+ posts on this blog you will find articles on Personal Financial Planning, Investments, Retirement Planning, Insurance, Loans, Fixed Deposits, Provident Funds, Stock Markets, Gold, Silver, Real Estate Investment, Credit Cards, Credit Score, Taxation, Inheritance Planning and Reviews on various Financial Products.

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View Comments

biku says:

October 22, 2016 at 8:26 pm

Is it safe to invest in fixed deposit of Bandhan Bank
Yash says:

October 19, 2016 at 11:08 pm

I have around 12Lac Rupees, Out of which 9.5 Lac is already with bandhan bank with FD maturity time of somewhere in mid 2018.
1. Is it safe to keep so much money in one bank considering this bank is new?
2. Can i put the remaining 2.5 Lacs too in bandhan bank as it offers better interest rates right now for 2years period?
- Amit says:
  
  October 25, 2016 at 7:49 pm
  
  Bandhan bank is new but it has been given banking licence with lot of deliberations from RBI. Also its closely regulated. Its safe for deposit!
  - Kuntal says:
    
    August 28, 2018 at 1:43 am
    
    Hi Amit, I have around 85 lacs in FD with bandhan bank, hope it is safe to keep investing further there?
    - Amit says:
      
      August 28, 2018 at 7:50 am
      
      yes
Viswanath says:

October 14, 2016 at 4:52 pm

Is it safe to invest Rs Fifteen lacs in Fixed Deposit offered by RBL? How to be sure that the decision does not go wrong?
- sanjay_thavi@yahoo.com says:
  
  July 17, 2017 at 2:59 pm
  
  for 0.5 or 1% higher interest do not risk your 99.5 or 99% money.. do not keep all money in RBL.. keep deposit in several banks.. so the loss is less..
  - Deeya R says:
    
    August 8, 2018 at 6:17 pm
    
    V correct
  - Deeya R says:
    
    August 8, 2018 at 1:03 am
    
    Yes v true.. do not keep all eggs in 1 basket
- Amit says:
  
  October 17, 2016 at 4:46 pm
  
  Yes you can invest. The only thing you should do is monitor RBL closely through news and blogs.
D.Venkateswara Rao says:

October 12, 2016 at 12:02 pm

I want to deposit that amount Rs.in IDFC Bank for 1 Year. is it secured .
- Amit says:
  
  October 17, 2016 at 4:48 pm
  
  yes
bunty says:

September 26, 2016 at 9:36 pm

i have about 20 lacs worth of FDs in State Bank of Patiala.Is it a safe bet as they are part of the State bank group or do I need to keep my eyes n ears open.What worse can happen with such a bank
- Amit says:
  
  October 17, 2016 at 8:07 pm
  
  SBI is the biggest Indian bank and government cannot afford it to fail, as it would mean collapse of entire economy. So just relax :)
Rahul says:

September 6, 2016 at 2:12 pm

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
- Amit says:
  
  August 13, 2017 at 10:37 am
  
  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.
Sayed aftab says:

August 27, 2016 at 3:19 am

Hi sir dady ka retirement amount hai 20 lack sir me kisme fd kru pls help kro
STEPHEN BOAZ says:

August 14, 2016 at 7:31 pm

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.
- Amit says:
  
  December 16, 2016 at 1:01 am
  
  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
asdfg says:

August 5, 2016 at 3:15 pm

◾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?
- Amit says:
  
  August 5, 2016 at 3:53 pm
  
  Cyprus is part of European unit with Euro as its currency. SO printing currency is not an option for them.
Provat Halder says:

July 19, 2016 at 9:15 pm

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.
- Amit says:
  
  July 20, 2016 at 1:49 pm
  
  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.