Protect Your Money From Your Bank

Written by Vidya Kumar

March 18, 2020

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Summary: Recent events related to PMC Bank and Yes Bank have shown that our money is not entirely safe in banks. Unfortunately, the insurance cover for depositors is not enough to cover every individual’s entire deposit. Depositors therefore have to take steps to minimise risk. Operate multiple bank accounts, keep a watch on your banking transactions and de-link troubled bank accounts from payment apps, services and investment related accounts.

2020 has started on a tough note. Tensions between U.S and Iran escalated. The coronavirus outbreak has evolved into a global pandemic. In India, the banking industry is facing tough times. There were restrictions on PMC bank and then the Yes Bank crisis unfolded. Such events cannot be predicted easily but are bound to happen. We have to protect ourselves from such risks. Banks are considered a safe haven for our money but as we have seen, banks commit mistakes as well. Our money is not completely safe. So how do we protect our money and shield ourselves from such financial risks –

Number Of Bank Accounts
Do not put all your money in one bank. Open and operate two or three bank accounts. You can own one account where your regular income is deposited and link it to your monthly payments. Set up another account to manage your investments. This account can be used for Mutual Fund SIPs and STPs. In this way, if either of the banks is affected, the account in the other bank can be used to manage savings and payments. Ensure that all accounts are operational. It is not convenient to have too many bank accounts as you will have the added effort of maintaining them and monitoring cash inflow and outflow. Moreover, you have to manage the income in all these accounts while filing income tax returns.

Check Your Balance On A Regular Basis
Monitor your accounts on a regular basis. You will know how much money you have and whether the bank’s interest payments are getting credited on time. This will also help you identify fraudulent activity immediately.

Set Up Alerts for Banking Transactions
Set up SMS alerts for debits and credits in your account. You will have an idea of your banking activity. It will also serve as a record when you want to manage your budget or file taxes.

De-link troubled account from payments and mobile apps
Your bank account might be linked with payment apps, service apps and other payments. If the bank is in trouble, de-link these accounts. Make arrangements to manage electronic clearing services with another bank account. It will not be easy but it is better to put in some effort rather than not use the services that you are used to. You can contact customer service of these applications or check out their social media handles. You will get information on how to de-link from troubled bank accounts and link with other secure bank accounts.

Opt for Safety Over Convenience
Some banks offer many services such as extended banking hours, better interest rates, free add-ons etc. Even though it is tempting to take up these offers, check the bank’s reputation and adherence to rules and regulations. Choose a bank that is trustworthy, stable and has a solid management crew. 
Some steps that you can take proactively are –

  • Be aware of the bank’s activities and keep a track of news related to the bank.
  • Bank deposits are guaranteed up to ₹ 1,00,000 in any combination of savings and other deposit accounts under the Deposit Insurance and Credit Guarantee Corporation (DICGC). Try to open multiple accounts under family members’ names. If possible, open a separate account for your firm and keep some money in that account.
  • Cooperative banks are under dual control. The RBI as well as the registrars under which they are registered govern them. This leads to loopholes that can be misused. It is better to avoid such situations.

We need not panic and distrust the entire banking system. We ought to diversify but not over-diversify our holding. It is also time for the government to take stringent steps against erring banks, revisit controls on banks and increase the insurance cover for depositors. 

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