When it comes to safe and stable investment options, Fixed Deposits (FDs) continue to remain a preferred choice among Indian investors. Especially for conservative investors who prioritize capital protection and predictable returns, FDs offered by banks and non-banking finance companies (NBFCs) are considered reliable.
However, if you have ₹10 lakh ready to invest in fixed deposits, an important question arises: Is it better to invest the entire amount in a single FD, or should you split it into ten FDs of ₹1 lakh each? While both approaches may look similar at first glance, the difference lies in liquidity, flexibility, risk management, and convenience.
Let’s understand which option can be more beneficial and for whom.
From a pure return perspective, there is no difference between investing ₹10 lakh in one FD or dividing it into multiple smaller FDs—provided the interest rate and tenure are the same.
For example, if ₹10 lakh is invested in an FD for 10 years at an annual interest rate of 7%, the estimated interest earned would be around ₹9.67 lakh, making the total maturity value approximately ₹19.67 lakh.
The same maturity amount will be received if the ₹10 lakh is split into ten FDs of ₹1 lakh each, assuming all FDs are booked at the same interest rate and tenure.
So, in terms of interest income and maturity value, both options are equal.
Pros:
Simplicity: Managing a single FD is easier. There is only one deposit receipt, one maturity date, and one renewal decision.
Less administrative effort: Ideal for investors who prefer minimal tracking and paperwork.
Cons:
Liquidity issues: If you need a small amount—say ₹50,000—you may be forced to break the entire FD. This could lead to premature withdrawal penalties on the full amount.
Deposit insurance limitation: As per DICGC rules, deposits in a bank are insured only up to ₹5 lakh per bank, including principal and interest. A ₹10 lakh FD in one bank may exceed this insured limit, exposing part of your investment to bank-specific risk.
Splitting your investment into multiple FDs of ₹1 lakh each offers several practical advantages:
Better liquidity: In case of urgent financial needs, you can break just one FD instead of the entire amount. The remaining deposits continue to earn interest without any penalty.
Improved risk coverage: By spreading FDs across different banks and keeping deposits below ₹5 lakh per bank, your entire investment can fall under DICGC insurance protection.
Interest rate flexibility: If interest rates rise in the future, maturing smaller FDs can be reinvested at higher rates, allowing you to benefit from interest rate averaging.
Better cash flow planning: Different maturity dates help in aligning funds with future financial goals such as education expenses, medical needs, or planned purchases.
Downside:
The only drawback is the need to manage multiple maturity dates and renewals, which may require a bit more attention and tracking.
If you value simplicity and convenience, and do not expect to need partial withdrawals, a single FD may suit you.
If you prefer higher flexibility, better liquidity, and improved risk management, multiple smaller FDs are generally the smarter choice.
Retirees, senior citizens, and investors who want emergency access to funds often benefit more from splitting FDs.
From a returns standpoint, both strategies deliver the same outcome. However, splitting ₹10 lakh into multiple FDs offers better liquidity, safety, and flexibility, making it a more balanced and investor-friendly approach for most people.
Before investing, consider your cash flow needs, risk tolerance, and ease of management, and choose the FD structure that aligns best with your financial goals.
Disclaimer: This article is for informational purposes only. Interest rates, tax rules, and deposit insurance norms are subject to change. Investors should consult a financial advisor before making investment decisions.
