Is Your Fixed Deposit Safe? Know DICGC’s Guarantee and See If Your Bank Is Insured!

Fixed deposits (FDs) have long been considered a safe investment choice, offering assured returns with minimal risk. However, recent financial incidents, such as IndusInd Bank’s accounting error-related crisis, raise concerns about deposit safety. The question remains—how secure is your money if a bank faces financial distress?

In India, deposit insurance is managed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI). This insurance scheme provides a safety net for depositors in case of bank failure, but it comes with limitations.

How Safe Is Your Money Under DICGC?

The DICGC guarantees a maximum of ₹5 lakh per depositor per bank, covering both the principal and accrued interest. This coverage applies in cases of bank failure, bankruptcy, or licence cancellation by the RBI.

While this protection reassures depositors, it is crucial to understand its limitations, particularly for individuals with large deposits spread across different accounts within the same bank.

Which Banks Are Covered by DICGC?

The DICGC provides insurance for deposits held in:

• All commercial banks, including public and private sector banks (e.g., SBI, IndusInd, ICICI Bank).
• Small finance banks and payment banks.
• State, central, and urban cooperative banks.

However, this insurance does not extend to primary cooperative societies, meaning deposits in such entities are not protected under DICGC.

What Is the Maximum Insurance Limit for a Depositor?

The insurance limit is set at ₹5 lakh per depositor per bank, covering various account types such as:

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

For example, if an individual has a ₹4 lakh fixed deposit and earns ₹1.5 lakh in interest, only ₹5 lakh (₹4 lakh principal + ₹1 lakh interest) will be insured. The remaining ₹50,000 in interest will not be covered.

Since this limit applies separately to each bank, depositors seeking additional security often spread their deposits across multiple banks to mitigate risk.

Will the Insurance Limit Increase in the Future?

Historically, the deposit insurance limit has been revised to keep up with economic realities. In 2020, the limit was raised from ₹1 lakh to ₹5 lakh following banking crises involving PMC Bank and Yes Bank.

With recent concerns arising from incidents like the New India Co-operative Bank crisis, industry experts and depositors have called for an increase to ₹10 lakh.

During a parliamentary session, Finance Minister Nirmala Sitharaman addressed this issue, stating: “DICGC may propose to the government to increase the deposit insurance limit, keeping in mind its financial position and the interests of the banking system.”

However, as of now, no formal proposal has been made to raise the limit further.

Final Thoughts

While DICGC offers a safety net, the ₹5 lakh limit means depositors with larger amounts should strategise their deposits wisely. Recent banking sector challenges serve as a reminder that understanding deposit insurance and diversifying funds across banks can help manage risk effectively.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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