Should you invest ₹10 lakh in a single FD or in multiple FDs? Find out what the smart option is!

If you want to invest a large sum like ₹10 lakh in a Fixed Deposit (FD), it's crucial to understand whether to invest the entire amount in a single FD or to divide the amount and invest in multiple FDs. Learn more about it here.

Whenever safe investments are discussed, the first thing that comes to mind is a bank Fixed Deposit (FD). The reason is clear – FDs have low risk and offer a predetermined return. However, when the amount is large, like ₹10 lakh, people often get confused about whether to create a single FD for the entire amount or invest in multiple FDs. The right decision depends on your needs, liquidity requirements, and security concerns. Let's understand what the smart way to invest ₹10 lakh in an FD could be.

Two ways to invest ₹10 lakh in an FD

If you have ₹10 lakh, you have two main investment options:

Option 1: A single FD of ₹10 lakh

In this option, you invest the entire amount in a single FD, at a fixed tenure and interest rate.

Option 2: Investing in multiple FDs

In this option, you divide the amount into parts, such as 5 FDs of ₹2 lakh each, or separate FDs of ₹5 lakh, ₹3 lakh, and ₹2 lakh.

Investing in a single FD: Advantages and Disadvantages

Advantages

Easy to manage.
Only one maturity date to remember.
No hassle in interest calculation.

Disadvantages

If you suddenly need ₹2-3 lakh, you will have to break the entire FD.
Breaking the FD prematurely results in penalties and lower interest.
Liquidity is reduced.

Investing in multiple FDs: Advantages and Disadvantages

Advantages

If needed, you can break only the FD for the amount you require.
The remaining FDs remain secure and continue to earn interest.
Having different maturity dates ensures you receive money periodically. If not needed, matured FDs can be reinvested.

Disadvantages

Tracking and managing multiple FDs can be a bit difficult.
You have to remember different interest rates and maturity dates.

What Smart Investors Do

Most smart investors adopt the FD Laddering Strategy. In this, they divide the amount into different FDs, investing in different tenures and banks. This maintains liquidity, reduces risk, and makes money easily available when needed.

Why FDs in Different Banks are Safer

According to DICGC (Deposit Insurance and Credit Guarantee Corporation) rules, only deposits up to ₹5 lakh in a single bank are covered by insurance. This means that if you have a ₹10 lakh FD in one bank, only ₹5 lakh of it is insured. However, if you invest in FDs in different banks, the amount up to ₹5 lakh in each bank is protected.

FAQs

Q1. Is it wrong to have a single FD of ₹10 lakh?

It's not wrong, but you might have to break the entire FD if needed, which can be disadvantageous.

Q2. What is FD Laddering?

In FD Laddering, the amount is invested in different FDs for different tenures.

Q3. How much insurance cover does DICGC provide?

It provides insurance cover for deposits up to ₹5 lakh in a single bank.

Q4. Is it safer to have FDs in different banks?

Yes, this can ensure that your entire amount is insured and reduces risk.