What Happens To Your FDs When The Bank Fails? How Much Money You Can Get Back?

What if a bank goes bankrupt? What happens to the investors' deposits? Have you ever wondered what would happen if banks failed to refund the money from a fixed deposit or savings account? Yes, it is possible, and the government has set up insurance to protect individuals in the event of a bank collapse. Individuals prefer bank deposits because they provide both protection and assured returns. Fixed deposits, recurring deposits, and bank balances in Savings or Current accounts are all examples of bank deposits. The deposit insurance scheme applies to all banks operating in India, including corporate, cooperative, and international bank branches.

The September 2019 failure of the Punjab and Maharashtra Co-operative Bank (PMC) highlighted the shortcomings of India's deposit insurance scheme. PMC bank was one of the biggest co-op banks, with over Rs 11,000 crore in deposits.

How safe are your bank fixed deposits?

Yes, to a certain extent your money in the bank account is safe. If your banks fail, you will be eligible to get at least Rs 5 Lakh including Principle and Interest. The scheme applies to all forms of bank deposits, including savings, fixed and recurring deposits.
Any deposits a depositor has in all of a failed bank's branches are combined. In other words, if a person has deposited in many bank branches, they will only be charged up to Rs. 5 lakh on the total amount. It's important to note that deposits from different banks aren't mixed.

Principal and interest are insured up to a limit of five lakhs by the DICGC. The total amount covered by the DICGC would be 4,990,000 if a person had an account with a principal amount of 4,95,000 plus accumulated interest of 4,000. If the account's principal was five lakhs, however, the accumulated interest would not be covered, not because it was interesting, but because it exceeded the insurance cap.

What Happens in the case of Joint Accounts?

There is a catch when it comes to joint accounts.

If three individuals jointly hold more than one deposit account (savings, present, revolving, or fixed) in one or more bank branches with their names in the same order(say ABC), all three accounts are considered held in the same capacity, and the insured account is capped at Rs 5 lakh. The joint holders of three accounts should be shown as A, B, and C; C, A, and B; and A, C, and B, respectively, to ensure Rs 15 lakh insurance coverage, that is each Rs 5 lakh is possible.

As a result, a Rs 5 lakh insurance cover will be available separately for each such joint account provided the names appear in a different order.

How does it work?

Bank depositors are not charged a fee by the Deposit Insurance and Credit Guarantee Corporation, but banks do pay a premium for the coverage. So, if a bank goes bankrupt, the deposit insurer must pay the claim sum of each depositor up to Rs 5 lakh to the liquidator or appointed officer within two months of receiving the claim list.
The new limit would cover roughly 93% of all bank accounts, up from 90% previously.

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