Finance Minister Nirmala Sitharaman presented the Union Budget 2020 in the Parliament on the 1st of February 2020. In it has been proposed an increase in deposit insurance to Rs. 5 lakh which was earlier set at Rs. 1 lakh for bank account holders. This revision in the insurance cover will be effective from the 4th of February, 2020.
This insurance is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) which is a wholly-owned subsidiary of the Reserve Bank of India (RBI). The move has surely come as a relief to investors of fixed deposits as it will bring about a greater measure of protection.
Effect of Budget 2020 on Fixed Deposit
In case the bank defaults, i.e. goes insolvent, leading to loss of funds to repay investors, DIGCG shall step in and pay Rs. 5 lakh as compensation instead of the previous Rs. 1 lakh amount, irrespective of the amount invested in the bank. This scheme is extended to holders of fixed and recurring deposit accounts along with the savings and current accounts.
Prior to Budget 2020, this limit was set at Rs. 1 lakh. For example, if someone has an FD worth Rs. 10 lakh and the bank defaults, DICGC would have paid Rs. 1 lakh only. But now, the compensation will amount to Rs. 5 lakh which is 80% more than the previous insurance cover.
The said increase in insurance cover against bank deposit accounts will surely bring about a sense of security to depositors.
What if there is more than one account in the same bank?
In case of more than one account in the same bank, whether it’s a combination of savings and fixed deposit account or the same type of accounts, the insurance coverage of Rs. 5 lakh will be paid once and not separately per account. This coverage is provided per bank and not per account.
In case of Joint Accounts
In the case of a person holding two accounts in a bank, one individually and the other as a joint account, then DICGC shall be paying the compensation of Rs. 5 – 5 lakh separately to each depositor. Here, these accounts shall be held in different capacities and different rights.
Suppose, Mrs. Arya has three accounts in, let’s say, DBS Bank, viz. a salary account (with a balance of Rs. 2.5 lakh), an FD account (Rs. 5 lakh) and a joint account with her husband (balanced at Rs. 2.5 lakh) amounting to a total of Rs. 10 lakh. Now, unfortunately, the bank defaults. Mrs. Arya’s salary account and FD account shall be treated as one, i.e. in the same capacity and right. Thus, DICGC shall be paying Rs. 5 lakh to Mrs. Arya and Rs. 5 lakh to her husband, separately.
Also, note that this coverage shall be insured against the principal as well as the interest of up to Rs. 5 lakh.