Bank FD rules: What happens to your money if a bank fails? The ₹5 lakh insurance limit, explained

If a bank fails, the Deposit Insurance and Credit Guarantee Corporation (DICGC) protects your money. This insurance covers up to ₹5 lakh per depositor per bank, covering both the principal amount and the accrued interest. This safety net is crucial as it ensures that even if a bank faces financial trouble, your funds remain secure.

Investors should note that the insurance applies to each depositor per bank, not per account. This means multiple accounts or Fixed Deposits (FDs) held in the same bank are clubbed together. To maximize protection, it is advisable to spread deposits across different banks to ensure every rupee is within the ₹5 lakh limit.

Going forward, keep an eye on the financial health of your bank. While the ₹5 lakh cover is a strong safety net, it is not a substitute for diversification. Regularly review your portfolio to ensure your investments are spread across various financial institutions, thereby mitigating risk effectively.