Fixed deposits (FDs) remain one of the most trusted investment options for people looking for stable and predictable returns. But if you have Rs 10 lakh to invest, an important question often comes up: Should you invest the entire amount in a single FD or split it into multiple smaller deposits?
The answer isn't about earning higher returns. If all the deposits carry the same interest rate and tenure, the maturity amount will be identical.
Both options offer advantages, and the right choice depends on factors such as your financial goals, liquidity requirements, risk appetite and investment horizon.
Here's a comparison of investing Rs 10 lakh in a single fixed deposit and splitting it into multiple smaller FDs.
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Rs 10 Lakh Lump Sum In A Single FD
Investment: Rs 10 lakh
Interest rate: 7% per annum
Tenure: 10 years
Estimated interest earned: Rs 9.67 lakh
Estimated maturity amount: Rs 19.67 lakh
Whether you invest the full Rs 10 lakh in one FD or divide it into 10 FDs of Rs 1 lakh each, the estimated maturity value remains the same.
Investing In One Large FD
Keeping the entire amount in a single fixed deposit is the simplest option. There is only one account to monitor, one maturity date and less paperwork. However, this approach has its limitations. If you need a small amount of money before the FD matures, you may have to break the entire deposit, which could result in a premature withdrawal penalty on the full investment.
Another factor to consider is deposit insurance. Under DICGC rules, bank deposits are insured only up to Rs 5 lakh (including principal and interest) per depositor per bank. Keeping the full Rs 10 lakh in one bank means part of the amount remains uninsured.
Splitting The Money Into Multiple FDs
Creating several smaller fixed deposits offers greater flexibility. If you need funds during the investment period, you can break only one FD while the remaining deposits continue earning interest. This helps avoid penalties on the entire investment.
Multiple FDs also make it easier to spread deposits across different banks, allowing investors to make better use of the Rs 5 lakh deposit insurance limit.
Another advantage is that if interest rates increase in the future, maturing deposits can be reinvested at higher rates instead of having the entire Rs 10 lakh locked into one long-term FD.
Investing in multiple fixed deposits also has some drawbacks. Since each FD is maintained separately, investors need to keep track of multiple maturity dates, renewals and deposit records. In addition, interest payouts and renewal processes are handled individually, making the overall management slightly less convenient.
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What's Better?
There is no single answer that suits every investor. A single Rs 10 lakh FD may work well for someone who prefers simplicity and is confident they will not need the money before maturity.
Multiple smaller FDs provide greater flexibility, better liquidity and the opportunity to benefit if interest rates rise in the future.
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