Bank Deposit Insurance Rule: Why ₹5 Lakh Should Be Split

A ₹5,00,000 FD looks fully protected, but insurance is capped bank-wise and includes interest and other deposits. Splitting reduces lock-in and access risk.

Many depositors treat a single-bank fixed deposit as “safe by default”. The catch is how deposit insurance is applied. DICGC protection is up to ₹5,00,000 per depositor per bank, including interest, and it is calculated after adding savings, FD, RD and current deposits in the same bank. 

That means a depositor who keeps a healthy savings balance and also books an FD can cross the insured ceiling without realising. A Business Standard explainer published on February 18, 2026 also pointed out that diversification improves safety more than brand familiarity. 

Why Splitting Deposits Across Banks Is A Practical Strategy?

The simplest rule depositors miss is aggregation. Moneycontrol, in its November 24, 2025 explainer, said the ₹5,00,000 cover applies per depositor per bank, including interest, and is counted across savings, current, fixed and recurring deposits held in that bank.
 

So a ₹5,00,000 FD in one bank can become partly uninsured once interest accrues, especially if the depositor also maintains cash in savings. The second angle is access. If a bank faces curbs, withdrawals may be restricted for a period, and depositors can end up waiting for resolution or payout. Business Standard’s February 18, 2026 article framed it bluntly: safety comes from diversification, not familiarity.

Here is a quick bank-wise checklist depositors can apply.

Splitting reduces the chance that interest or a parallel savings balance pushes the depositor above the insured threshold in 1 bank.

How The Debate Has Evolved Over Time?

Deposit insurance limits and depositor awareness have been in focus since the cover was last raised from ₹1,00,000 to ₹5,00,000 on February 4, 2020, as listed in mint’s explainer updated on February 12, 2026. 
 

The bigger story is coverage versus value. Mint, citing DICGC information, reported that as of March 31, 2025, insurance covered 97.6% of bank deposit accounts by number, but only 41.5% of deposits by value. 

Hindustan Times, in a January 30, 2026 report, also carried the same headline ratios and added context: assessable deposits were ₹240 lakh crore, while insured deposits were ₹100 lakh crore. 

This gap is exactly why depositors with larger balances increasingly spread deposits across banks instead of piling into one institution.

Here are common splitting patterns seen among depositors.

₹3,00,000 FD in Bank A + ₹2,00,000 FD in Bank B

Leaves headroom for savings balance and interest in each bank

Higher-rate SFB FD for a portion + large bank for balance

Rate benefit with bank diversification, as highlighted by LoansJagat and Business Standard