The ₹5 Lakh Rule, Read Correctly

DICGC cover is not ₹5 lakh per account, nor per FD. It is ₹5 lakh per depositor in each bank, added up across every branch and every deposit type held in the same right and capacity. A savings account of ₹1 lakh and an FD of ₹4.5 lakh at the same bank, both in your sole name, total ₹5.5 lakh, of which ₹5 lakh is covered.

The cover includes interest. That is the detail most forwarded messages leave out, and it is why the advice to keep “exactly ₹5 lakh” in an FD is slightly wrong. A deposit that starts at ₹5 lakh is fully covered only on the first day. Every quarter of interest pushes it further above the limit.

Almost every bank you are likely to use is covered: commercial banks, including foreign banks’ branches in India, small finance banks, payment banks, regional rural banks and co-operative banks. DICGC listed 1,950 insured banks as of 31 March 2026, of which 124 were commercial banks and 1,826 co-operative banks. Corporate deposits and NBFC fixed deposits are not bank deposits and are not covered at all.

Why a ₹5 Lakh FD Quietly Outgrows Its Cover

Take a cumulative FD of ₹5 lakh at 7% for three years, compounded quarterly. It matures at ₹6,15,720. If the bank failed just before maturity, the balance due would be about ₹6.16 lakh, and ₹1.16 lakh of it would be uninsured. To stay fully covered right up to maturity, the starting amount has to be lower.

The higher the rate and the longer the tenure, the smaller the safe starting amount. That is exactly the trap for savers chasing high rates at smaller banks: an 8% five-year FD needs to start below ₹3.37 lakh to stay fully covered. A non-cumulative FD that pays interest out every quarter avoids most of the problem, because the balance stays close to the principal.

How Big Is the Risk, Really?

The numbers in DICGC’s own Safety Net newsletter, issued in May 2026, put the risk in perspective. As of 30 September 2025, 97.5% of all bank accounts were fully protected, because most accounts hold less than ₹5 lakh. But by value, only 41.1% of assessable deposits were insured. Most money sits in a small number of large accounts that are only partly covered.

The claims tell the other half of the story. DICGC paid ₹1,988 crore in 2025-26, and its newsletter notes that no claims were received from commercial banks. In recent years, failures that triggered payouts have come overwhelmingly from co-operative banks. That does not make commercial banks risk-free, but it does show where the risk has actually materialised.

The Deposit Insurance Fund stood at ₹2,61,823 crore on 31 March 2026, up 14.4% in a year, with a reserve ratio of 2.37% of insured deposits at end-September 2025. The fund exists to pay insured amounts; it is not designed to cover uninsured balances.

A Limit Raised Only Six Times in 64 Years

The cover has been raised rarely, and each change came after long gaps. StableMoney’s history of the limit shows it starting at ₹1,500 in 1962 and reaching ₹1 lakh in 1993. It then stayed at ₹1 lakh for 27 years, until it was raised to ₹5 lakh in 2020.

Reports in 2025, including one summarised by StableMoney, said the government was considering a higher limit of ₹8 to 12 lakh. As of October 2026, no notification has been issued and DICGC still refers to ₹5 lakh as the current limit. Plan on ₹5 lakh until an official change is announced.

Covering ₹20 Lakh Without Leaving Gaps

For larger savings, the answer is not to stop using FDs but to spread them. Cover is counted per bank and per capacity, so the same family can lawfully hold several fully insured deposits. A deposit in your sole name, one in your spouse’s sole name, and a joint deposit are treated as separate capacities. DICGC’s guidance also treats deposits held as a guardian for a minor, as karta of an HUF, or for a firm as separate capacities from your personal deposits.

Spreading across banks also pairs well with laddering, where deposits mature in different years. Five FDs of about ₹4 lakh each, at five banks and maturing one year apart, keep every deposit within cover, give you a maturity every year to meet expenses or reinvest at prevailing rates, and avoid breaking a single large FD if you need part of the money early. A ladder does not raise the overall return, but it buys flexibility and spreads both bank risk and rate risk.

If a Bank Fails, What Happens to Your Money?

Before 2021, depositors of a failed bank could wait years for their insured money, because DICGC paid only after a bank was liquidated. The DICGC (Amendment) Act, 2021 changed that. When the RBI places a bank under restrictions on withdrawals, DICGC now pays insured depositors on an interim basis, within about 90 days, without waiting for liquidation. DICGC publishes these payments as Section 18A releases on its website.

The sequence matters for planning. In the first weeks, withdrawals may be frozen or capped. The bank compiles a list of depositors and their balances, DICGC verifies it, and insured amounts are paid into a bank account you nominate. Money above the insured limit is not paid by DICGC; it depends on what is recovered from the bank’s assets, a merger or a rescue, and that can take far longer or never come in full.

Why liquidity matters as much as safety

Even an insured depositor can be cut off from money for weeks. If your entire emergency fund sits in one smaller bank, a freeze can leave you unable to pay bills, even though the money is eventually protected. Keeping a few months of expenses in a large bank, or split across two banks, avoids that. Safety and access are separate problems, and both need solving.

The senior citizen squeeze

Senior citizens typically receive about half a percentage point more on FDs, and many keep most of their savings in deposits. Higher rates mean cumulative FDs outgrow the cover faster, and larger savings mean more money above the limit. For seniors in particular, payout FDs that send interest to a savings account each quarter keep the insured balance close to the principal and provide regular income at the same time. TDS applies only once interest at one bank exceeds ₹1 lakh in a year for senior citizens, which also favours spreading deposits.

When Holding More Than ₹5 Lakh Is Reasonable

Many savers keep more than ₹5 lakh in one large bank, and for some that is a reasoned choice rather than a mistake. Splitting money across five banks adds paperwork, more KYC and more TDS certificates, and it can mean accepting lower rates at some banks. The question is how much extra safety the effort buys.

A reasonable approach is to treat the ₹5 lakh limit strictly at co-operative banks and small finance banks, where an extra rate point is the main reason to be there, and more flexibly at the largest banks. That is a judgement, not a guarantee. In past stress cases involving private banks, regulators organised rescues or mergers that protected depositors, but there is no legal promise that they always will.

The Return Side: What That FD Actually Earns

Safety is one half of the decision; return is the other. A ₹5 lakh FD at 7% for three years earns an effective yield of about 7.19% a year before tax. For a saver in the 30% slab, the post-tax yield is about 5.03%. With inflation at 5.5%, the real return is about −0.47%, meaning the money loses a little purchasing power.

That context matters for the ₹5 lakh question. If an FD at a smaller bank pays one percentage point more, that point is worth about ₹5,000 a year on ₹5 lakh, before tax. Above the insured limit, that extra point is compensation for taking uninsured risk. For a senior citizen in a low tax slab, the trade-off looks different again, and TDS applies once interest at one bank crosses ₹50,000 in a year for most depositors.

Your FD Safety Checklist

Frequently Asked Questions