Here's what happens to fixed deposits if your bank shuts down

A fixed deposit (FD) is a financial instrument provided by banks or other financial institutions, which provides investors a fixed rate of interest along with a maturity date.

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Among many accounts that are introduced in Indian banking system, one such is the fixed deposit account which offers guaranteed return and is considered as safe instrument.

One of the major reasons why our parents and many in our generation would like to have this investment pool, is because of it's safety features.

Also, having a fixed deposit account supports in getting a loan. A person can borrow up to 90% of the fixed deposit amount from their bank.

Another advantage of FD would be it's flexible maturity date, as one can invest in them for a time frame of six months to as long as 10 years or even more period.

According to GoodReturns report, one can invest in FDs, if their risk appetite is very low. On the other hand, if you are risk averse stay with fixed deposits as the advantages far outweigh the disadvantages.

Going ahead, the report added, if you are over 50, your ability to take risk would be low. At such a time it is best to stay invested in fixed deposits.

But considering this is a matter of money, it is always best for some studies in investment under FDs, because what if something were to happen to the bank? It could close or have its license cancelled, or be liquidated. What would happen to your Fixed Deposit then?
Here's a list of facts for fixed deposits that you need to remember, according to BankBazaar report.
Firstly you need to remember that, there are effective regulation by the Reserve Bank of India (RBI) which ensures that your deposits are safe. The RBI has made Deposit Insurance compulsory for all banks and no bank can withdraw from it.

It means that no matter what happens to your bank, whether it closes down, is liquidated, undergoes a reconstruction or amalgamation or is merged with another back, your money is still protected.
As per the norm, each depositor is insured for up to Rs 1 Lakh for Savings, Fixed, Current and Recurring Deposits and this includes both the principle and the interest amount accrued.

Whether it be Public, Private, Co-operative or Foreign Banks (with branches in India), all of them are covered by the Deposit Insurance. Given this, no one bank is safer than another.

What happens if your FD is more than Rs 1 Lakh?

BankBazaar mentions that, the limit for the sum of the deposit insured is Rs 1 lakh per person for any given bank. Even if you have your deposits in different branches of the same bank, they will be aggregated for the purpose of the insurance cover, which will only extend up to this amount (Rs. 1 lakh).

However, to protect yourself better, you can increase your Deposit Insurance cover by depositing your money in different banks. As long as the deposits are in separate banks, the Deposit Insurance will apply separately, added the report.

So if you are planning to have an FD, then make sure the above mentioned factors are kept in check.

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