BREAKING NEWS: Increase in deposit insurance coverage to P1M

Our reporter in Malacanang, Joel Guinto, reported just now that President Gloria Macapagal-Arroyo has approved a move to raise deposit insurance coverage to P1 million from the current P250,000.

This would still require new legislation. If approved by both houses, this move will increase confidence in the banking system by time deposit-loving Filipinos.

Deposit insurance simply means if a bank goes pfft, you can still get your deposit up to P1 million from the Philippine Deposit Insurance Corp. There are, however, several common misconceptions about deposit insurance.

First, the guarantee works per bank, not per branch. I could hardly believe my ears when I found that some wealthy guys put P250,000 in one branch, then another P250,000 in another branch and so on, “to maximize the PDIC coverage.”

Splitting deposits that way will NOT protect you. If all deposits in the different branches are under one name, the insured amount is only up to P1 million (if the law gets approved). Right now, it’s still P250,000.

Second, deposit insurance should be a last resort for safety. Some depositors chasing after returns put their money in banks offering extremely high interest even if that’s often a sign that the bank is having cash problems. Their reasons? Deposits are covered by PDIC guarantee after all. Oh if they only saw the agony victims of bank closures go through, despite the assurance of a guarantee by the PDIC. Claiming the funds is not exactly a walk in the park.

Deposit insurance is not to be used as a guarantee for foolish behavior. When choosing banks, stability, capitalization and management values should be the paramount criteria and not just interest rates on deposits.

-from the Inquirer.net