Thursday, 7 April 2016

10 Important Things to Know Before Depositing in Co-Operative Banks

Posted by MyInvestmentsPub
Co-Operative Banks are nothing but another sector of Banks that are organized in the Co-Operative sector which operate both in Urban and non-Urban areas. These banks are traditionally centered around communities, localities and work place groups and they essentially lend to small borrowers and businesses.These banks provide most services such as savings and current accounts, safe deposit lockers, loan or mortgages to private and small business customers. They also offer FDs or Fixed
Deposits with attractive interest rates, generally 1.5% - 2% higher than the regular Commercial Banks. Hence, many people used to deposit their money into these Co-Operative Banks. However, before depositing into these Banks, we should know some important points about Co-Operative Banks.


Fixed Deposits With Co-Operative Banks:

Today there are a number of good Co-operative banks offering Banking services and Products to the Rural, Semi-Urban and Urban families. Apart from the regular banking activities, these Co-operative banks also offer FDs with good interest rates, generally 1.5% - 2% more interest than the regular Commercial banks. As the Interest Rates at Commercial Banks are gradually decreasing because of the lowering Inflation rates, many are looking towards Co-Operative Banks to see attractive yields to
their deposits.

Advantages of Opening FD with Co-Operative Bank:

Co-operative Banks offer a number of benefits as compared to other banks when it comes to Fixed Deposits. Some of these advantages are mentioned below.

  1. Simple eligibility criteria – Co-operative banks do not have an exhaustive list of eligibility criteria, ensuring that almost everyone can open and maintain a fixed deposit account.
  2. Hassle-free application – The entire application process is simple and hassle free with minimal paperwork, keeping the interest of customers in mind.
  3. Attractive rates of interest – Co-operative banks offer attractive interest rates on their fixed deposits.
  4. Loans – Most co-operative banks offer loans to customers in lieu of their fixed deposits. Also, even when you are illegible to loan from public sector banks or private banks then you have high possibility that you will get loans easily. Because their rules are not that much stringent.
  5. Additional services – One can use services like internet banking to simplify their banking experience.
  6. Local Flavor - As these banks are operated and managed by local people, it is convenient to prove your financial health than other banks.

The checklist for prospective depositors is:


  • Is the bank a profit making one?
  • Are the accounts of the bank properly audited?
  • How much are the gross and net non-performing loans?
  • Does the bank hold annual general meetings regularly?
  • What is the bank's audit classification?
  • What's stated in the report of Reserve Bank of India inspection?

Things to Remember Before Depositing Into Co-Operative Banks:

  1. The interest rates in Co-operative Banks vary from Bank to Bank. Age and profession of an individual are determining factors for banks to calculate the rate of interest. Some banks may offer a higher interest rate for senior citizens, teachers, or armed forces personnel.
  2. Different banks have different tenures on the FD accounts they offer. However, in general a minimum of 46 days to a maximum of 84 months can be opted as tenure.
  3. The rules of RBI are applicable to Co-Operative Banks as well.
  4. Each depositor in a bank is insured up to a maximum of Rs 100,000 for both principal and interest as on the date of liquidation/cancellation of bank's licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.
  5. It is always recommended to one has to deposit a maximum amount of up to Rs 1,00,000 (1 Lakh) in one bank to avail the Deposit Insurance Coverage to your deposits.
  6. If you have to deposit more than 1 Lakh, then split the amount and deposit into different Banks to avail the Insurance coverage. For example, if you want to deposit 5 Lakhs, then split into this amount into 5 parts and deposit into 5 different Co-operative banks. Deposits in different banks are separately insured. 
  7. The joint account is considered in a different right and different capacity and insurance coverage is provided separately. Each joint account is insured separately from any deposits individually owned by the joint depositors. Each joint account owned by a combination of different persons is insured upto Rs 100,000.
  8. Though the Co-operative Banks offer higher interest rates, there is a risk of misusing your deposits by the Directors of a Co-Operative Bank. Hence, it is always required to check the track record of the Co-Operative Bank before depositing your amount.
  9. To give high interest rates to the depositors, generally these Co-Operative banks lend their money at higher rate of interest to the people. There is a chance of borrowers whose financial track record is not good or other banks rejecting their loans will opting the loans from the Banks and chance of high risk to your money.
  10. Though your deposit (for a maximum of Rs 1 lakh) is insured, the time frame to get back your money in case of liquidation is lengthy and need to wait for longer time.

Best Co-Operative Banks and the Deposit rates:



Conclusion:

Depositing in Co-Operative Banks is riskier hence it is recommended to deposit in small amounts (a maximum of 1 lakh only). Also you need to check the health of that Co-operative bank and keep monitoring the actions going on that bank.

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