Many depositors believe that splitting money into several fixed deposits within the same Bank makes their savings safer. It feels sensible: instead of one large FD, create three or four smaller FDs and assume the risk is spread out. But in terms of deposit insurance, that belief is misleading. In India, deposit insurance is provided by the Deposit Insurance and Credit Guarantee Corporation, or DICGC.
The insurance cover is up to Rs 5 lakh per depositor per bank, and this limit includes both principal and accrued interest. The crucial point is this: the cover is not given separately to each FD, each savings account, or each branch. All eligible deposits held by a person in the same bank, in the same right and capacity, are added together for insurance purposes.
So, suppose you hold three FDs of Rs 2 lakh each in one bank. On paper, you may feel diversified because the deposits are split. In reality, your total exposure to that bank is Rs 6 lakh, and DICGC insurance will still cover only up to Rs 5 lakh. The same rule applies even if those deposits are spread across different branches of that bank.
The branches may be different, but the bank is the same, and the insurance cap is calculated at the bank level. This is why multiple FDs in the same bank can help with cash-flow planning, laddering, or managing interest-rate risk, but they do not increase safety from a deposit-insurance point of view. If the goal is to improve safety beyond the Rs 5 lakh insured limit, the more effective approach is to spread deposits across multiple insured banks, because the Rs 5 lakh cover applies separately to each bank.
DICGC’s insured-bank framework is bank-specific, not account-specific. For personal finance readers, the lesson is simple. Do not confuse product diversification with institution diversification. Five FDs of Rs 1 lakh each in one bank do not give you Rs 25 lakh of protection. They still give you only up to Rs 5 lakh of insurance cover in that bank, subject to the DICGC rules.
To truly reduce concentration risk, think in terms of how much money is parked with one bank, not how many deposits you have created there. In short, splitting deposits within one bank may make your portfolio look organised, but it does not create extra insurance safety. For that, diversification across banks matters more than diversification across FDs. That is a small distinction, but in personal finance, small distinctions often make a big difference.
(Disclaimer: This article uses information originally published by Dalal Street Investment Journal (DSIJ). The views expressed are those of the original authors and not necessarily of ABP Network Pvt. Ltd. This content is provided for general informational and educational purposes only and should not be construed as investment, financial, legal or tax advice. Readers are advised to conduct their own research and/or consult a qualified financial advisor before making any investment decisions. This content is for informational purposes only and should not be treated as investment advice. ABP Network, its employees and associates shall not be responsible or liable for any losses or damages arising directly or indirectly from the use of or reliance on this article or any information contained herein.)
