Deposit insurance

A bank can fail. Deposit insurance is the promise that when it does, a depositor does not lose everything.

The booklet's version of the promise is direct: the Central Government deposit insurance scheme "ensures that all deposits are insured by the Government up to a limit of Rs 5 lakhs per customer in that particular bank." If a bank fails, the depositor is assured of getting back up to that amount from that bank.

The limit is per customer, per bank — not per account and not per deposit. A person with a savings account, a fixed deposit and a recurring deposit at the same bank is covered up to Rs 5 lakh in total across all three, not Rs 5 lakh on each.

The booklet's own wording: "Central Government deposit insurance scheme ensures that all deposits are insured by the Government up to a limit of Rs 5 lakhs per customer in that particular bank. So, even in case of a failure of a bank, depositors are assured that the Government will step in and return up to Rs 5 lakhs of their savings in that bank."

The booklet directs readers wanting the complete detail of the scheme to the Reserve Bank of India's website, "from time to time" — signalling the scheme's fine print can change and should be checked directly rather than assumed.

Farida holds Rs 4,50,000 in a savings account and a Rs 3,00,000 fixed deposit, both at the same bank — Rs 7,50,000 in total.

If that bank fails, deposit insurance covers her only up to Rs 5,00,000 in total across both accounts at that one bank, not Rs 5,00,000 on the savings account plus another Rs 5,00,000 on the FD. She stands to lose the remaining Rs 2,50,000 unless it can be recovered through the bank's liquidation process.

Had Farida instead split her money — Rs 5,00,000 at Bank A and Rs 2,50,000 at Bank B — deposit insurance would cover the entire Rs 5,00,000 at Bank A and the entire Rs 2,50,000 at Bank B, because the Rs 5 lakh ceiling applies separately to each bank.

Chapter 4 (Savings Related Products), in the banking section, states the Rs 5 lakh figure directly after explaining why keeping money in a bank beats keeping cash at home. Expect a direct recall of the Rs 5 lakh ceiling, and a scenario question testing whether the candidate applies it per bank or wrongly per account.

• Rs 5 lakh is per customer, per bank — not per account. Multiple accounts at one bank are added together for the limit.
• Splitting large deposits across different banks multiplies the cover, because the limit resets for each separate bank.
• Do not confuse this with the Employee Deposit-Linked Insurance Scheme (EDLI) — that is a life-insurance benefit tied to an employee's EPF account, an entirely different scheme with a different purpose; this booklet's deposit insurance is about bank deposits failing, not about an employee's death.
• The booklet does not name the scheme's administering body by its statutory name here — for the full text of the scheme, it points readers to the RBI website rather than restating every condition.