Budget 2020 makes bank FDs safer with higher insurance cover

5 MinsMarch 18, 2020

Bank Fixed Deposits (FDs) remain a much sought-after investment avenue. They offer guaranteed returns and are easy to invest in. To put it simply, a bank FD offers a sense of financial security, particularly if your goal is to generate wealth securely and steadily. This makes it a must-have for your investment portfolio.


The benefits of bank FDs include:

  • Fixed and secured returns
  • The returns could counter inflation
  • Address short-term as well as medium-to-long-term financial goals
  • Are an effective medium to build a rainy day fund
  • Can help in tax planning (if you invest in a 5-year tax saver bank FD)
  • Play an important role in asset allocation and diversification
  • Ensure liquidity and help manage cash-flows while being invested
  • Can be used as collateral for a loan if required

But have you wondered what happens if the bank you have invested in faces a fraud? What happens to your FD then? The current regulatory guidelines of the Reserve Bank of India make it mandatory that all commercial and co-operative banks are insured under the Deposit Insurance and Credit Guarantee Corporation (a wholly-owned subsidiary of RBI) by duly paying the premiums.

In the Union Budget 2020-21, the insurance limit under the (DICGC) has been increased from Rs 1 lakh to Rs 5 lakh (including the principal amount + interest) per depositor (aggregating deposits for all branches of a respective bank).

[Also Read: Bank FD - A Safe and Secure Way to Invest]

The earlier limit of Rs 1 lakh had not been revised since May 1993, when it was set. But over the years, depositors have been investing substantially higher amounts in FDs. Hence, there was a need to increase the limit of the insurance cover.

Bank FDs have been very popular and are a meaningful investment avenue for risk-averse investors and senior citizens -- providing secure and safe returns – and the above measure is reassuring for such depositors, covering covering not just investments in bank FDs but also savings account and current account. Further, both single and joint accounts will be covered under the DICGC.

To maximise returns from a bank FD, here’s what depositors should do:

  • Lock-in when the interest rates are high. But be wary of banks offering an extra-ordinary high-interest rate on an FD. Remember, with exceptionally high-interest rates comes high risk;
  • Park the windfall received sensibly in a bank FD;
  • Select your investment tenure and plan (reinvestment of interest, quarterly pay-out of interest, and monthly pay-out) thoughtfully keeping in mind the goal being addressed and liquidity needs;
  • Invest regularly with discipline and keep renewing your bank FD; and
  • Avoid prematurely withdrawing bank FD, as it could impede the power of compounding. Instead, consider availing a loan against FD.

To know how much you will receive as returns, use Axis Bank’s FD calculator. Axis Bank offers an attractive rate of interest on Fixed Deposits across types of term deposits and tenures. Axis Bank also offers partial premature withdrawal, of up to 25% of the principal amount, with no penalty, on deposits opened after December 15, 2017.

You may book your bank FD offline (by reaching out to your relationship manager at the bank or visiting your nearest branch) or online (via internet banking or mobile banking) ––the choice is completely yours.

Almost anyone can invest in a bank FD -- Resident individuals, Hindu Undivided Families (HUF), sole proprietorship firms, partnership firms, limited companies, Trusts, and so on. Visit our website to know the eligibility and documents required for fixed deposit.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.