How To Keep Your Money Safe in a Pandemic
Even as some of us, in states like Maharashtra, begin the fourth month in lock-down, the rest of the country seems determined to put COVID-19 behind it. This has two significant financial implications for all of us. First, several concessions offered during the lock-down have been rolled back from 1st July. So, it is business as usual. Although things are not yet normal, the minimum balance requirements as well as charges for ATM withdrawals, beyond a threshold, are back. Moreover, financial intermediaries are back to hustling investment opportunities that will fetch them the highest commission but may not be in your best interest. 
 
Meanwhile, the ordinary saver is battered and anxious about her health in times of COVID and the impact of the economic downturn on her own savings. This makes her a perfect target to hard-selling investment products. 
 
Savers’ fears are completely understandable. A string of high-profile failures of banks, finance companies, the debacle at Franklin Templeton and the manner in which Tier-1 bonds of Yes Bank were wiped out, have made people jittery. During the lock-down, many non-finance professionals have spent time devouring webinars offering investment advice to improve returns on their savings. Even Standard & Poor’s (S&P’s) poorly drafted headline in a press release led to a wrong interpretation about Axis Bank which was further magnified by social media chatter. 
 
What should a smart saver do in times like these? Think about Urvashi and follow a ‘take it easy policy’, as in the hit song that broke language barriers! Give yourself time to think, and rethink, before taking decisions because the first focus should be to keep your savings safe from people working overtime to make you part from your money. 
 
Online Transactions: On 19th April, I wrote “Beware of COVID Scams, Fraud, Profiteering and Corruption”. We saw this play out in a big way over the past two months. On 29th June, the media reported how Dr Sanjaya Baru was duped of Rs24,000 because he tried to buy liquor through an unknown website called ‘La Cave Wines and Spirits’. Since he was a former adviser to prime minister Manmohan Singh and a well-known editor, the police sprang into action and nabbed the culprits at Kaman town in Rajasthan. 
 
Moneylife Foundation has frequently warned that the simple rule about online shopping is to stick to large, well-known companies. Not every online company is an Amazon or Flipkart, even if it offers similar terms and promises quick delivery and returns. If you want to buy liquor online, there may be safer options like Nature’s Basket which used to be owned by the Godrej group and is now an RP-Sanjeev Goenka group company. 
 
It is important to remember that fraudsters are very well organised and not everyone gets the quick attention that Dr Baru did. In fact, the scale of phishing attacks can be so huge, that on 22nd June, the government issued public warnings about a ‘large-scale cyber attack’ that would use COVID-19 as a bait and an email ID that was spoofed to look like an official government email ([email protected]). While online shopping and payments are an amazing convenience in a lock-down, there is no alternative to being extremely vigilant.
 
Financial Products: The first worry people have is about the safety of their banks. Again, the bigger the bank, the safer it is, because it is more likely to be bailed out. Senior citizens and retirees are perturbed at the steady decline in interest on term deposits. At the same time, newer private banks are offering as much as 7% even on savings accounts (conditions attached). Should you risk it? The good news is that deposit insurance for banking deposits has been raised to Rs5 lakh. So you have some room for taking a risk and earning more. If your money is already in a safe place, don't move more than Rs5 lakh until things settle down and there is clarity on which way the economy is headed.
 
A big hustle in times of COVID is to sell COVID insurance. As Moneylife has pointed out, if you have a good health insurance, it already covers COVID. This is important to remember when a Yes Bank tempts you with a Rs25,000 COVID cover on opening a new bank account (only for those below 60 and only for the first year, but with a higher interest of 7.25% ). 
 
If you are really faced with COVID infection, a Rs25,000-insurance payout will not be a good substitute for a good health policy offering a cover of at least Rs5 lakh-Rs6 lakh. For those who have no insurance, it may make sense to buy one of the many COVID policies launched by the insurance industry; but pay attention to the waiting period and other conditions. 
 
This is also the time when savers are urged to move money from fixed deposits (FDs) and mutual funds (MFs). The Franklin fiasco has led to the realisation that ‘mutual funds sahi hai’ is just a slogan, not a guarantee on safety of principal or returns. So choosing the right MF schemes from the hundreds on offer needs expert advice or serious research. 
 
Similarly, enough fingers have been burnt in the past three years (DHFL, DS Kulkarni, the builder who boasted about his integrity but was raising deposits in multiple firms without regulatory clearance) by investing in bonds and debentures of companies. Here, again, there is value in sticking to the most reputed names or public sector entities. One used to advise savers to study credit ratings; but there is no sanctity to ratings anymore when rating agencies can drop debt instruments or companies from investment grade to default overnight, with absolutely no consequences to themselves. 
 
You cannot depend on the regulator to protect you. Grievance redress mechanisms rarely work because dubious companies know how to trap savers with hidden clauses or sign-offs. The only safety is in a flight to quality. Only four or five highly reputed housing finance companies and non-banking finance companies fit this category. Most often, higher returns are a red flag.
 
Way Forward 
What does one do when faced with a job loss or businesses shut–down, coupled with massive loans that are accumulating interest, when there is no income? The answer is to work at reducing liabilities and finding ways to boost income. 
 
This is easier said than done; many have, indeed, managed to change track, lower expectations and find ways to keep earning. We have heard of a jeweller who took to selling vegetables, a doctor couple has taken to distribution of COVID protective gear and people offering online tuitions. 
 
For those who have large outstanding loans, this may also be a time to look at cashing the gold you have squirreled away for a rainy day. Gold prices are at an all-time high and have breached the Rs50,000 mark (for 10gm). This may not be the right time to buy more, but to use it judiciously if you are in deep debt. 
 
Moneylife Foundation receives many queries from people looking to consolidate multiple loans (credit card outstanding, app loans, car loans, etc) and pay a single EMI (equated monthly instalment). But few lenders offer a bigger loan when the borrower is already struggling to pay. A significant reduction in outstanding may help persuade a lender and your gold can help tide over a crisis. But even distressed borrowers tend to forget this asset or remain emotionally attached to it; even worse, some compound their problem by opting for a gold loan instead of selling to reduce debt. Each person’s financial situation is different; but those who can, must cash in their gold reserves to reduce loans.
 
Finally, the real estate industry is putting out surveys to show that interest in buying a home has not dampened. Can this be true or is it just a sales pitch disguised as a survey? Only those in very secure jobs or who do not need a home loan should consider buying at this time. All others would be smart to wait until the economy looks better. 
 
All in all, the best action to safeguard your savings is to focus on reducing liability and playing safe. Now is not the time for risk-taking, especially for non-finance savvy persons.
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    COMMENTS

    Premkumar R

    8 months ago

    Sane advice; very interesting observation about home loans: "who do not need a home loan should consider buying at this time. All others would be smart to wait until the economy looks better. "

    hamungel

    8 months ago

    Excellent and Practical Advice.

    Ramesh Popat

    8 months ago

    proper asset allocation is important. good advise may help.
    diversification also useful. only bank fd is not right solution.
    risk is everywhere but we hv to earn much more than the
    actual inflation to prosper.

    sundar_ramang

    8 months ago

    Very useful article and well meaning practical advise from Sucheta Dalal

    m.prabhu.shankar

    8 months ago

    Excellent Article. Thanks a lot Sucheta ji.

    yerramr

    8 months ago

    A good cautionary note. It is difficult to choose options. Going safe would mean be content with what you get from banks - particularly, the safest now are only PSBs who offer the lowest rates on your savings for different tenors. If you want a higher return as senior citizen you should be prepared to park for 5 years. But senior citizens should have flexibility for, they know not how urgently they need liquidity. If you are 75+ even insurance may not help and even if provided, they provide at an unaffordable premium. Do not be greedy for higher return than what banks offer for shorter terms. My suggestion is to keep some money in recurring deposit of two years and the rest in 5-year tenor at higher interest for all the senior citizens. They can also simultaneously opt for interest to regularly to be taken into a RD Account.

    ssk.pab

    8 months ago

    You have said grievance redress mechanism rarely woks since dubious companies know how to trap savers with hidden clauses or sign-offs.
    Well, my personal experience shows even well reputed BANKS know how to keep redress mechanism on their right side - to such an extent that grievance redress authorities also do not look at what wrong these banks have done-either deliberately or without themselves being aware of even the printed rules. The blame lies as much with dubious companies including well reputed banks as with regulating authorities and there is no mechanism to control regulating authorities except to go to the Court. Sad state of affairs in the country.

    jjain782

    8 months ago

    Could you please send me the names of banks which offer reasonable interest rate and safe also

    kpushkar

    8 months ago

    Very good and practical advise👍👍

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