Recent hikes in Fixed Deposit (FD) interest rates by several banks have generated a lot of interest among individual investors. FD investment is arguably the safest and guaranteed method of growing money. But what happens when the bank fails? Banks rarely fail. But then, the investor's mind is inquisitive. S/he wants to be aware of what will happen to the FD amount in the event of a bank fail. Or, whether there is a way to ensure that the FD and interest remain safe even the worst strikes the bank. 

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Well, there is a way that ensures that the customer does not lose all the money deposited in the FD account when the bank fails. Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a subsidiary of the Reserve Bank of India (RBI), insures deposits and interests of an individual up to Rs 1 lakh in banks across the country. 

As per the official RBI website, these banks include:

- All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks. 

- All state, Central and primary cooperative banks, also called urban cooperative banks, functioning in States/Union Territories. 

However, co-operative banks in Meghalaya, and the Union Territories of Chandigarh, Lakshadweep and Dadra and Nagar Haveli are not covered under the deposit insurance system of DICGC. 

If an individual has multiple deposits in a bank, the DICGC clubs all deposits as one, insuring the maximum up to Rs 1 lakh. "Each depositor in a bank is insured up to a maximum of Rs.1,00,000 (Rupees One Lakh) for both principal and interest amount held by him," says the central bank. 

"The deposits kept in different branches of a bank are aggregated for the purpose of insurance cover and a maximum amount up to Rupees one lakh is paid," it adds. 

However, deposits by an individual in separate banks are insured separately. 

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The RBI says, "All funds held in the same type of ownership at the same bank are added together before deposit insurance is determined. If the funds are in different types of ownership or are deposited into separate banks they would then be separately insured."

Hence, if you fear your bank may fail, it is advisable to have multiple FDs in separate banks.