Three Ways to Protect your Deposits in Banks

The recent fallout of PMC bank has raised many questions on the safety of depositor’s money in the bank. Since the bank was operating in a particular region with small-scale operations, the effect was not felt nationwide. However, it has done serious damage to those who had kept their hard-earned money in that bank.

My question is, what would’ve happened if the same thing had happened with any of the nationalised banks? In that case, what measures the bank would’ve taken to safeguard the depositor’s money? 

Placing curbs on withdrawals and the deposit insurance scheme of Deposit Insurance and Credit Guarantee Corporation is certainly not enough. There are many senior citizens, who depend on the interest income from deposits to meet their daily expenses.

So, what are the options available to depositors or the common people of India?

Despite placing numerous checks and balances, such cases will continue to surface, because no one can control personal greed. And, it’s not the first case that banks are facing such a crisis and such cases are surfacing regularly. Remember the PNB fiasco, or the IDBI one. 

The onus to protect money in banks ultimately falls in the hands of depositors through some proactive measures.

Here are some of the ways through which you can protect your deposits in banks.

Spread Your Savings Between Different Banks

We have all heard this proverb, don’t keep all your eggs in one basket. The same goes for your hard-earned money also.

Rather keeping your entire savings in one bank, it is always a good practice to spread your savings in more than one bank. The ideal situation is to keep your savings equally spread between three banks.

This ensures that if anything goes wrong with one bank, you don’t find yourself amid an existential crisis. And, with all banks offering near to similar interest rates on deposit, there will be no huge variation in returns.

Avoid Keeping Entire Savings in Single Name Account

As per the deposit insurance scheme by Deposit Insurance and Credit Guarantee Corporation, an individual depositor is entitled to a maximum benefit of only Rs 1 lakh, irrespective of the no. of deposit certificate he/she has with a bank.

Surely, you will not like it to be this way, rather covering all deposit certificates. The best way to reduce your risks is to spread your savings between two to three other individual depositors. Through this way, you can claim for more insurance benefit, in case the bank goes bankrupt.

Keep Yourself Aware

Third, and the last is to keep yourself aware of the prevailing situations in banks and the economy. As all banks rely on retail deposits for extending credit facility to individuals and businesses. Therefore, it is important to keep a check on NPA levels of the bank.

Checking the profitability and auditor’s statement will also help you to know how well your bank is positioned.

And, it is better to avoid small banks like cooperative banks and small finance banks with your entire savings. As most of the criminal minds targets officials of such banks to take advantage of the loopholes of their system.

These are some basic steps you should follow to protect your deposits in banks than placing your entire faith on the system. Do let me know in the comment box, how do you protect your savings in the banks.

Update: Government has increased the insurance amount on deposit from Rs 1 lakh to Rs 5 lakh w.e.f. April 2020.

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