Are recurring deposits covered by insurance?

  • Recurring Deposit
  • 3 Months ago
 Are recurring deposits covered by insurance
HIGHLIGHTS

  • Features of Recurring deposit
  • Are recurring deposits covered by insurance?
  • How does Deposit Insurance Credit Guarantee Corporation work?


The Recurring Deposit scheme is one of the best and a secured investment plan in which there is a guaranteed return on the investment. Both salaried and self-employed can create recurring deposit accounts. Under this scheme, the recurring deposit account holder has to invest a fixed amount monthly for a certain period. The tenure of the recurring deposit ranges from 06 months to 10 years. On maturity of the scheme, a person will get an interest amount along with the principal amount. It is the best option for those who are planning short-term financial situations or want to create some emergency funding. It is totally a secured investment.

Features of Recurring deposit:

  • The minimum amount of investment one can make in the recurring deposit is Rs 500 and low investment is a major attraction.
  • It helps in developing the habit of saving among the people. Payment on recurring deposits could be made from any savings or current accounts. It is possible by linking a bank account with a Recurring Deposit account.
  • Unlike investments like mutual fund investment where the high risk of return is involved, you do not have to worry about the loss of money in recurring deposits. It is a very secure investment plan.
  • The rate of interest of fixed deposit and recurring deposit is the same. Both interest rates are locked in. Any fluctuations will have no impact on your recurring deposit. It is a guaranteed investment plan.
  • The rate of interest offered to senior citizens is higher, usually by 0.5%.
  • There are no tax exemptions in recurring deposits in case interest earned on the recurring deposit exceeds Rs 10,000.
  • In case the bank is making a TDS deduction, even if you are not falling under the taxation slab, then you can submit Form 15G below the age of 60 years and form 15H for above the age of 60 years.

Are recurring deposits covered by insurance?

Yes, recurring deposits are insurance covered for the safety of deposit-holders. At times, a bank is in a financial crisis and is left with no money to pay back recurring deposit money to account-holders.

  • The organisation that is accountable to provide insurance in a recurring deposit, fixed deposit, or money deposited in a savings account or current account is Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of Reserve Bank of India.
  • It is the responsibility of DICGC to ensure that all savings, fixed deposits, recurring deposits get an insurance cover up to Rs 5 Lakhs.
  • If the recurring deposits held by a company or individual in a bank are above Rs 5 lakh, then the deposit- holder gets only 5 lakh including interest and principal amount at times of bankruptcy.

How does Deposit Insurance Credit Guarantee Corporation work?

The Deposit Insurance Credit Guarantee Corporation secures all the money deposited in foreign or commercial banks. It includes recurring deposits of all banks, be it the central bank, state bank, cooperative bank, local bank, or even regional rural banks available in India.

The deposit insurance of recurring deposit is done as the Deposit Insurance and Credit Guarantee Corporation Act, 1961 framed under the supervision of Reserve Bank of India of sub-section (3) of Section 50 of the Act. The aim of establishing this organisation is to insure the recurring deposit-holders making a secured investment.

What is Deposit Insurance Credit Guarantee Corporation accreditation?

When banks make registration with the Deposit Insurance and Credit Guarantee Corporation, the agency issues a certificate to the bank stating that all the deposits including fixed deposits, recurring deposits, and saving accounts of the bank are financially insured and secured. If there are any doubts, the customers can ask about the deposit insurance scheme from the bank officials.

What kind of deposits do not get any insurance cover under DICGC?

  • Deposits done by State and Central Government
  • Deposit made by Foreign Governments
  • Deposits of State-Co-operative Banks
  • Inter-bank deposits
  • Funds or deposit government received from outside of India

Always make recurring deposits after making proper research about the credibility of that financial institution. For this, you can also check the ICRA rating companies for recurring deposits. It is one of the most trusted and reliable credit rating agencies comprising credible information of leading banks, NBFCs, Corporates, and other financial institutions. Their job is to evaluate the credit risk associated with top banks, NBFCS, and corporates. 

If you are in search of the best and secured investment plan, go with Shriram Recurring deposits as it has been given MAA+/ with ``Stable Outlook" rating by ICRA. Counted as one of the best and unique deposit schemes of Shriram City Union Finance Limited.

Frequently Asked Questions

What types of bank recurring deposits are insured by DICGC?

All the commercial banks including branches of foreign banks that are located in India are insured by Deposit Insurance and Credit Guarantee Corporation.

What kind of insurance cover is being done by DICGC?

It is the accountability of DICGC to insure all deposits be it savings, current, or fixed deposits. It excludes only those deposits done by the government or any of the deposits of a foreign bank.

What is the maximum insurance covered given in recurring deposits of banks?

The maximum insurance cover available in recurring deposits is up to Rs 5 lakhs, which includes both principal and interest amount.

What is the maximum amount of insurance provided by Deposit Insurance and Credit Guarantee Corporation for the deposits that are kept in different bank branches?

The aggregate insurance cover is being provided to recurring deposit holders. The maximum amount one gets for all deposits made is Rs 5 lakh for the same bank.

Is insurance cover given only on the principal amount of recurring deposit or on interest accrued?

The DICGC assures safety of both principal and interest amount up to Rs 5 lakhs. For instance, if you made a recurring deposit of Rs 495,000 and accrued interest on the same is Rs 4000, the total amount being insured is Rs 499,000. The amount insured in this case is excluding the interest accrued for principal amount exceeding 5 lakhs.

Are the deposits of the different banks insured separately?

The deposit insurance coverage limits are different for each of the banks.

Does the bank allow the withdrawal of the recurring deposit before maturity?

Yes, one can close the recurring deposit at any point in time. Interest will be paid till that time only.

How are banks calculating the maturity amount on recurring deposits?

The banks calculate the maturity amount based on the account type, installment, and tenure.

In which scenarios DICGC becomes liable to pay?

If the Deposit Insurance and Credit Guarantee Corporation become liable to pay only in scenarios when there is a situation of bankruptcy. It will take place within two months from the date of receipt of the claim request. It is the responsibility of the liquidator to make disbursal of the claim amount to each of the insured recurring depositors. The DICGC makes the payment to the respective bank and furthers the payment made to the customer.