Home BusinessFinance Bank FDs insured up to Rs5 lakh. Should I opt for bank that offers higher rates?

Bank FDs insured up to Rs5 lakh. Should I opt for bank that offers higher rates?

The closure rate of savings accounts with Indian branches of foreign banks is as high as 18%, and it is about 9% at domestic private sector banks, according to a brokerage report. Photo: Hemant Mishra/Mint

As the fixed deposits with banks is secured up to 5 lakh, can we now choose any bank to make the FD up to 5 lakh which offers higher rate of interest? – Sajal Ghosh

Answer: Higher returns on any investment product always entail higher risk. The bank FD is not “secured” by the government as stated by you but there is an insurance up to 5 lakh of deposit with a particular bank in case the bank defaults in payment of the deposit. The deposits are insured by the Deposit Insurance and Credit Guarantee Corporation Limited (DICGC), provided the bank pays the premium timely.

Please note that the insurance is applicable in respect of all the deposits lying with the bank whether it be in saving account, current account, recurring account or fixed deposit account. The insurance is available on an overall basis for the bank as a whole and not for each of the branch.

Please note that the insurance of the deposits does not ensure that you will get the money immediately on the bank going bust. It may take anything between six months and two years for you to get your money back even if the same is insured.

Please note that in case of default of the bank, what you will get is the money lying with the bank on the date of the default and no interest is paid after that date. So there is always a risk of you losing interest on your money for the period between the bank going bust and your claim settled. So take your call accordingly.

The writer is a tax and investment expert and can be reached at [email protected]

This article is auto-generated by Algorithm Source: www.livemint.com

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