Have you ever wondered what would happen to the money in your account when your bank shuts down? Since September 2021, 12 banks have gone into liquidation.

Don’t worry your money is safe to an extent. Your bank has insured your account with the RBI. This means that if your bank goes bankrupt or into liquidation at any point, the RBI will pay you back up to Rs 5 lakh per account holder.

For example: if you have Rs 7 lakh in your bank account and your bank goes into liquidation, the RBI will pay you Rs 5 lakh under DICGC insurance (Deposit Insurance and Credit Guarantee Corporation).

This means regardless of what happens, you can invest up to Rs 5 lakh with a bank without any worry about your capital being at risk.

Accounts covered under DICGC

This DICGC insurance applies to savings, fixed, current, recurring accounts, etc. However, not all banks are DICGC-covered.

The RBI issues a list of banks that are covered under DICGC insurance. To check whether your bank is covered, you can refer to this link issued by RBI.

How to maximize your Fixed Deposit returns?

So here’s how you can optimize DICGC insurance to maximize your FD returns.

Step 1: Invest in FDs from small finance banks since they offer better interest rates than commercialized banks, often as high as 8-8.5% per annum. Some small finance banks are even offering over 9% annual interest to depositors.

Step 2: Invest around Rs 4-4.5 lakhs in these banks since DICGC insurance covers up to Rs 5 lakh per account holder in that bank. There is no point in depositing more and not getting adequate risk coverage.

Step 3: Invest in the same bank through multiple accounts.

For example, you can invest Rs 4 lakh through yourself, through your spouse, through a joint account where you are the primary account holder, and through a joint account where your spouse is the primary account holder.

Note: RBI treats both joint accounts as separate account holders due to who the primary account holder is, so each account in that bank is covered separately under DICGC insurance.

Other cases where an account is treated as a separate account

a) Individual account
b) Joint account with someone else
c) A partner opening an account in a bank as a partner of a partnership firm
d) A director opening an account in a bank as a director of a company
e) A guardian opening an account as a guardian for a child.

By doing so, you can invest in high-interest FD through multiple separate accounts maximizing your returns all the while ensuring that the money you have invested along with the interest is completely risk free.  

Disclaimer: This article is purely for informational purposes and should not be misconstrued as financial advice. Please do your research; interest rates and calculation methods can vary from bank to bank, so be sure to calculate if the product is a good fit for you.