Bank failures can be a serious problem for consumers. While there’s no denying that a savings account helps in keeping your money safe, you must not ignore the fact that even banks can collapse. To safeguard yourself and avoid panic in case your bank collapses, it’s essential that you understand the situation and what you can do to keep your money safe.
What happens when bank collapses?
If your bank is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), your money is protected up to legal limits in case of a bank failure. Thus, you won’t lose your savings account balance even if your bank goes out of business.
With an aim to provide a greater degree of protection to depositors in banks, the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the RBI, has increased the limit of insurance cover for depositors in insured banks from Rs. 1 lakh to Rs. 5 lakhs. per depositor with effect from February 4, 2020, post the approval from the Indian Government. All types of deposits such as savings, fixed and recurring, are covered under this scheme. The Rs. 5 lakhs limit covers both principal and interest amount.
There are certain measures that you can take from your end to keep the money in your savings account secure from a bank failure. Some of them are mentioned below:
Open a savings account with insured banks
Before opening a savings account with any institution, you must make sure that it is covered by the government. Your deposits will be safe if the bank is insured by the DICGC. You can check the bank’s insurance status on the DICGC website.
Don’t exceed the insured deposit limits
The DICGC insures up to Rs. 5 lakhs per person per bank. In case you deposit more money in your savings account than the insurance limits, the additional funds won’t be insured, and you could lose them in case of a bank failure.
Open account with multiple banks
If you have a savings account in more than one bank, you will have a backup account ready to go in case your primary bank fails. With reputed banks, you can open an online savings account within a short span from the comfort of your home.
Keep your money in a bank
Regardless of the odds of a bank failure, you must certainly consider opening a savings account with a reputed bank. This is because banks are still a much safer place to keep your money than at home. If you keep large amounts of cash at your home, you risk losing it to a robbery or fire.
When opening a savings account, you must avoid small cooperative banks that are not insured by the DICGC. Before you deposit your money in any bank, make sure that you check its credibility and financial status by getting in touch with a finance expert. This will help you make a well-informed decision.