Why Keeping Entire Rs 5 Lakh In One Bank May Be Risky: Know DICGC Rules

DICGC insures bank deposits up to ₹5 lakh per customer per bank, including principal and interest

If you have ₹5 lakh and are planning to deposit it in a bank — whether in a savings account, fixed deposit (FD) or recurring deposit (RD) — putting the entire amount in a single bank may not be the safest strategy.

The reason lies in the Deposit Insurance and Credit Guarantee Corporation (DICGC) rule.

DICGC, a wholly owned subsidiary of the Reserve Bank of India (RBI), provides insurance cover on bank deposits up to ₹5 lakh per customer per bank. This limit includes both the principal amount and the interest earned.

This insurance cover was increased from ₹1 lakh to ₹5 lakh on February 4, 2020.

What Happens If A Bank Fails?

If a bank is declared a defaulter or faces restrictions, DICGC guarantees repayment only up to ₹5 lakh per depositor per bank.

For example, if you invest ₹5 lakh in an FD and, after maturity, the total amount becomes ₹5.20 lakh, but the bank collapses, you will receive only ₹5 lakh. The remaining ₹20,000 will not be covered under insurance.

Similarly, if your total deposits in one bank — across savings account, FD, RD or current account — exceed ₹5 lakh, the excess amount will not be insured.

Important Rule About Multiple Accounts

If you have accounts in multiple branches of the same bank, all balances are added together. The insurance limit of ₹5 lakh applies to the total combined amount, not branch-wise.

However, if you hold deposits in two different banks, the ₹5 lakh insurance cover applies separately to each bank. This means you can get up to ₹5 lakh from each bank in case both face financial trouble.

Why Splitting Money Makes Sense

If you divide ₹5 lakh into two banks — say ₹2.5 lakh in each — your deposits remain fully protected in both banks.

If you have more than ₹5 lakh, distributing funds across different banks ensures that each deposit remains within the insured limit. This strategy reduces risk and protects your savings in case one bank faces problems.

The DICGC rule applies equally to public sector banks, private banks and small finance banks. Larger banks are not given higher insurance cover. The ₹5 lakh cap remains the same for all member banks.

What Is Covered — And What Is Not

DICGC insurance covers:

• Savings accounts
• Current accounts
• Fixed deposits (FDs)
• Recurring deposits (RDs)

It does not cover:

• Shares
• Mutual funds
• Bonds
• Other market-linked investments

The insurance premium is paid by the bank, not the customer.

Key Takeaway

If you are saving for retirement, children’s education or emergencies, it is wise to keep your total balance in any one bank within ₹5 lakh. If your savings exceed that amount, spreading them across multiple banks can help ensure full insurance protection.

Disclaimer: This article is for informational purposes only. Investors should evaluate their financial situation carefully before making deposit or investment decisions.