Holding more than ₹5 lakh in a single bank account—why could this be risky?

Do you know how much money you should keep in your bank account? Do you have more than ₹5 lakh in your account? If so, your funds might not be entirely safe. You might be wondering why. The Union Budget 2020 introduced changes to savings account regulations, establishing that ₹5 lakh is considered a safe limit for deposits—a rule that has received Cabinet approval. Let’s understand what happens if you keep more than ₹5 lakh in your account and why it is not advisable to do so.

**RBI Provides Insurance Cover Only Up to ₹5 Lakh**
The DICGC, a subsidiary of the Reserve Bank of India (RBI), provides insurance cover of up to ₹5 lakh per depositor—covering both the principal amount and interest—for a single savings bank account. Consequently, if you hold more than ₹5 lakh in a single savings account, the excess amount will not be covered by this insurance.

**Only ₹5 Lakh Recoverable if the Bank Goes Bust or Fails**
If a bank goes bankrupt, fails, or suffers a theft, you will only be able to recover up to ₹5 lakh of your money. Therefore, keeping more than ₹5 lakh in a single savings account is not considered safe.

**How ​​to Keep Your Money Safe**
If you want to ensure your money remains safe in the bank, avoid keeping a large sum in a single account. Instead, distribute your funds across accounts in different banks to ensure you receive full insurance coverage.

**Disadvantages of Keeping Large Amounts in a Savings Account**
Furthermore, keeping a large amount in a savings account yields relatively low interest—typically between 2.5% and 4%. It is far more beneficial to invest any surplus funds exceeding ₹5 lakh in instruments like Fixed Deposits (FDs) or mutual funds.

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