MANILA, Philippines?Fewer people are laughing all the way to the bank.

A top official of the Bangko Sentral ng Pilipinas has warned the public to do their homework first before depositing money in the bank.

Deputy Governor Nestor Espenilla said depositors should first scrutinize the deals being offered by the bank and other aspects of its operations.

Espenilla made the statement in light of the recent closure of several rural banks found to have been engaged in questionable practices, such as offering higher interest rates funded by money coming from subsequent depositors.

Such an operation is likened to a pyramid scheme, where the operator pays high interest rates to the initial investors by using the money of new recruits, until the operation collapses as the number of recruits bringing in money starts to dwindle.

Do your homework

?This is why the BSP is advocating greater financial learning. If you?re going to deposit P1 million, it?s advisable that you do a little homework,? Espenilla said Saturday at the Sulo Hotel forum in Quezon City.

One of the things depositors should be wary of is high interest rates and other non-cash incentives offered by banks, he said.

Depositors should have reasonable expectations from banks. ?You know the saying: If something sounds too good to be true then it probably is,? Espenilla said in a subsequent ambush interview.

If the prevailing interest rate of banks is 6 percent, people should be wary if they are being offered 25 percent. Depositors should not be greedy, he stressed.

They should not use the deposit insurance or the Philippine Deposit Insurance Corp. (PDIC) as an excuse to keep their money in banks with unrealistic interest rates and questionable practices, Espenilla said.

Neighborhood bank

Another thing that people should scrutinize is the lending practice of banks, he said. Depositors should study the kind of people that banks give out loans to.

Another good rule to follow is to deposit money in banks in your area. There are banks in far-flung places who use agents to entice people to entrust their money with them, he said.

?There may be agents in your area but the bank is [located] in a far place. That?s another danger sign,? Espenilla said.

It is also better to patronize banks in one?s community because the people who run them and those who live in the area tend to know each other. He said this was usually the case with rural banks.

Despite the recent closure of rural banks, Espenilla said people should keep their money in an institution rather than keeping it under the mattress.

Money in the bank will earn interest, he noted.

Espenilla said he believes the BSP is doing a good job of keeping tabs on the operations of banks.

However, there is no guarantee that banks will not fail and go bankrupt, he said. Banking, after all, is a private business.