Fixed are often seen as one of the safest investment options, but there is a limit to how much of your bank deposit is protected if the bank fails. This becomes important for investors who keep large sums in FDs with a single bank.
In a post on X, Sanjay Kathuria shared a clip from his appearance on The Ranveer Show podcast and highlighted the risk of putting a large FD amount in one bank.
How much of your FD is actually protected?
Kathuria mentioned that the “ guarantees your FD up to ₹5 lakh, per bank. Put ₹5 lakh in HDFC, ₹5 lakh in ICICI, even if both banks collapse tomorrow, you get both ₹5 lakh back. Not a combined 5, each bank separately.”
The protection comes through deposit insurance provided by the Deposit Insurance and Credit Guarantee Corporation (). The insurance cover is up to ₹5 lakh per depositor per bank, including principal and interest.
The DICGC insures deposits such as savings, fixed, current, and recurring deposits, with certain exceptions, including:
- Deposits held by foreign, Central or State governments
- Inter-bank deposits
- Deposits received outside India
- Deposits specifically exempted by the DICGC with RBI’s prior approval
For example, if an individual has ₹3.5 lakh in a savings account, ₹50,000 in a current account and ₹1.75 lakh in an FD with Bank A, the total deposits with Bank A would be ₹5.75 lakh. However, the DICGC insurance cover would be limited to ₹5 lakh per depositor per bank.
If you have deposits with multiple banks, the ₹5 lakh deposit insurance limit applies separately to each bank.
What happens if you have ₹50 lakh in one bank?
This is where concentration risk becomes important.
Suppose an investor puts ₹50 lakh in an FD with one bank. The investor cannot assume that the entire ₹50 lakh will be protected under deposit insurance if the bank fails. The insured amount is capped at ₹5 lakh per depositor per bank.
Kathuria highlighted this risk, mentioning that “35-40 scheduled banks have shut down in India in recent years; Nirmala Sitharaman herself said this. And people still fall for a manager offering 9% when the market rate is 6%, and dump their entire ₹50 lakh into one small bank for that extra 3%.”
For investors, the key lesson is that a higher FD interest rate should not be evaluated in isolation. A significantly higher rate may come with higher perceived credit or bank-level risk.
Should investors spread their FD money across banks?
Kathuria suggested diversification as the best way to reduce risk. “Spread it across 10 banks instead, ₹5 lakh each. Don’t chase FOMO on a rate that looks too good, because if the whole deal looks too good, something in it is definitely off,” he noted.
Investors with large FD portfolios should consider bank-wise concentration, deposit insurance limits and the financial strength of the bank, rather than choosing an FD purely because it offers the highest interest rate.
Disclaimer: This is purely for educational/informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.