Winning Bizness Desk

Mumbai. Many depositors assume that money kept in fixed deposits is completely safe, but the reality is more nuanced. If a bank collapses, your entire savings may not be protected. This makes it crucial for investors to understand how deposit insurance works in India and what portion of their money is actually secure.

How much of your FD is protected

In India, deposit insurance is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The cover is capped at Rs 5 lakh per depositor per bank. This limit includes all types of deposits such as savings accounts, current accounts, fixed deposits and recurring deposits combined.

For example:

• Total deposit in one bank: Rs 12 lakh
• Insured amount: Rs 5 lakh
• Uninsured amount at risk: Rs 7 lakh

This means any amount above Rs 5 lakh in a single bank is exposed to potential loss in case of a bank failure.

Multiple FDs in one bank do not help

A common misconception among depositors is that splitting money into multiple FDs within the same bank reduces risk. However, the insurance limit applies to the total amount held in that bank, not to individual deposits.

• Five FDs of Rs 2 lakh each still count as Rs 10 lakh total
• Insurance cover remains only Rs 5 lakh
• No additional protection is gained

Simple way to reduce overall risk

The most effective way to safeguard your money is by spreading deposits across different banks. This ensures each deposit falls within the insured limit.

Rs 15 lakh example strategy:

• Rs 5 lakh in Bank A
• Rs 5 lakh in Bank B
• Rs 5 lakh in Bank C

This way, the entire amount remains covered under insurance.

Using joint accounts to increase safety

Insurance cover is calculated per depositor, which allows investors to increase protection using joint accounts.

• Individual account: Rs 5 lakh cover
• Spouse account: Rs 5 lakh cover
• Joint account: separate Rs 5 lakh cover

By structuring deposits smartly, even within the same bank, higher amounts can be secured.

Different account capacities offer extra cover

Deposits held in different capacities, such as individual, joint, or trustee accounts, may qualify for separate insurance limits. However, this depends on specific conditions and should be planned carefully. Not all combinations automatically qualify, making it important to understand rules before relying on this strategy.

Are all banks equally safe for deposits

Small finance banks often offer higher interest rates but carry relatively higher risk. It is advisable not to park more than Rs 5 lakh in such banks. Larger banks like State Bank of India, HDFC Bank and ICICI Bank are generally considered more stable, but concentration risk still exists.

• Do not keep entire savings in one bank
• Avoid chasing only high interest rates
• Balance safety with returns

What high value investors should do

Those with larger savings should avoid relying only on fixed deposits. Diversification across asset classes can significantly reduce risk.

• Consider government bonds
• Invest in high-quality instruments
• Maintain liquidity across options

At the fag end, the key takeaway is clear: fixed deposits are safe, but not entirely risk-free. Any amount beyond Rs 5 lakh in a single bank increases exposure. A well-planned distribution across banks, account types and investment avenues is essential to truly protect hard-earned money.