Investors often believe that holding multiple fixed deposits in the same bank increases their insurance protection. However, the Deposit Insurance and Credit Guarantee Corporation (DICGC) provides a maximum cover of ₹5 lakh per depositor, per bank, which aggregates all account balances and accrued interest. To protect larger sums, individuals must diversify their savings across different financial institutions, as deposits within the same bank are not insured separately.
Many savers try to maximize their safety by splitting a large amount of money into several fixed deposits across different accounts within a single bank. The common belief is that each account creates a separate layer of protection. However, this strategy does not increase your insurance coverage. Under the rules set by the Deposit Insurance and Credit Guarantee Corporation (DICGC), the safety net is restricted to a maximum of ₹5 lakh per depositor, per bank.
How the ₹5 Lakh Limit Works
The ₹5 lakh cap is an aggregate limit. It does not apply to each account, nor does it apply to each individual fixed deposit. Instead, it covers the total sum of all deposits held by one person in a single bank. This includes money held in savings accounts, current accounts, recurring deposits, and fixed deposits. If you hold a fixed deposit of ₹10 lakh in one bank, only the first ₹5 lakh is covered by the insurance scheme. The remaining ₹5 lakh is not covered by the DICGC, and in the event of a bank liquidation, recovery of that excess amount would depend on the bank’s remaining assets.
The Impact of Accrued Interest
It is important to remember that the ₹5 lakh limit includes both the principal amount you invested and any interest that has been added to your account over time. If a depositor has a savings account and a fixed deposit that combined reach ₹5 lakh, the interest earned on those deposits can easily push the total balance above the insurance threshold. Once the total exceeds ₹5 lakh, the excess amount remains uninsured. This is why investors with large corpuses often need to pay close attention to their total exposure in any single bank.
Why Diversification is the Key
Because the insurance limit is applied on a per-bank basis, the only effective way to increase total protection is to hold deposits in different banks. If a depositor holds ₹5 lakh in Bank A and another ₹5 lakh in Bank B, both amounts are fully insured because they are held at separate legal entities. Shifting money between different branches of the same bank does not provide any extra protection, as the legal entity remains the same. The insurance scheme is designed to cover the bank as a whole, regardless of which branch the money is kept in.
Important Exclusions to Monitor
Not all financial institutions offer this protection. The DICGC covers commercial banks and cooperative banks, but it does not extend to deposits held with Non-Banking Financial Companies (NBFCs). Many investors mistake the higher interest rates offered by some NBFCs for safe investments, forgetting that these do not carry the same insurance backstop as bank deposits. For those managing significant wealth, the primary defense remains assessing the financial stability of the bank, as insurance is intended to be a final safeguard rather than a primary tool for risk management.