Explain what is Deposit Insurance?

What is deposit insurance?

Deposit insurance provides protection to bank account holders. Its purpose is to protect deposit holders when the bank fails and is unable to pay money to its depositors. 

Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India (RBI), provides the insurance protection.

All bank deposits such as savings, current, fixed and recurring are protected. DICGC insures up to a limit of 5 lakhs per bank.

If you have a total deposit of more than 5 lakhs, then you will be able to get only 5 lakhs (principal + interest) if the bank goes bankrupt. 

What does DICDC cover?

DICGC provides insurance coverage for various types of deposits, including savings, fixed, current, and recurring deposits. However, certain types of deposits are not covered, such as deposits from foreign governments, central/state governments, inter-bank deposits, deposits from state land development banks with the state cooperative bank, deposits received outside India, and any exempted amounts approved by the Reserve Bank of India

Does the DICGC insure both the principal and the interest on an account?

DICGC insures both the principal and any accrued interest up to a maximum of five lakhs. For instance, if an account holds a principal amount of ₹4,95,000 and accrued interest of ₹4,000, the total insured amount would be 4,99,000. However, if the principal amount alone is five lakhs, any accrued interest wouldn't be insured since it exceeds the coverage limit.

We hope that you now have a basic understanding of what Deposit Insurance and DIGC are.