Got ₹2 lakh, ₹5 lakh or even ₹10 lakh sitting in your savings account? Here's what you can do

Keeping money in a bank account makes sense when it is meant for emergencies, regular expenses or a financial goal coming up soon. But if a large sum has been sitting there without a specific purpose, it may be worth reviewing whether all of it needs to remain in the savings account.

In an interaction with Upstox News, Shweta Shastri, CFP and founder of Finnora Wealth Studio, said the first step is to separate money that may be needed soon from genuine surplus.

“The first thing to look at is whether you have an adequate emergency corpus. Money that you may need in the near term should remain accessible. Once that is taken care of, the surplus can be looked at from a long-term investment perspective,” Shastri said.

Have ₹2 lakh? Check your emergency fund first

Depending on your circumstances, you could keep the money in a savings account, fixed deposit or another suitable liquid and relatively low-risk option.

In this case, access to the money is more important than trying to maximise returns.

What if you have ₹5 lakh or ₹10 lakh sitting in the bank?

The situation is different if your emergency fund is already in place and the ₹5 lakh or ₹10 lakh is genuinely surplus money.

Before deciding where to invest it, consider when you are likely to need the money. If you are saving for a house down payment in the next two years, for example, your approach could be very different from someone investing for a goal that is 10 years away.

“If you have ₹5 lakh or ₹10 lakh sitting in a savings account and there is no foreseeable need for the money, it deserves a closer look. But that doesn't mean moving the entire amount into equity at one go. The investment strategy should depend on the person's goals, time horizon and risk profile,” Shastri said.

Don't want to invest ₹10 lakh at once? STP is one option

Now, suppose you have ₹10 lakh that you don't need in the near future and have decided to invest it for the long term. But you are uncomfortable putting the entire amount into equity at one go.

One option investors consider is a Systematic Transfer Plan (STP), under which money is transferred periodically from one mutual fund scheme to another.

“An STP doesn't remove market risk, nor does it guarantee better returns than investing the entire amount at once. It can, however, give an investor a systematic way to deploy a large sum instead of constantly waiting for the ‘right’ time to invest,” Shastri said.

So, should you keep the money in your savings account?

There is no magic number that determines how much money you should keep in your bank account.

If you don't have an emergency fund, the money may need to remain liquid.

If you have a near-term financial goal, the money should be positioned with that goal and time frame in mind.

But if you already have an adequate emergency corpus, have no immediate need for the money and are holding ₹5 lakh or ₹10 lakh as long-term surplus, it may be worth reviewing whether keeping the entire amount in a savings account is the right approach.

“The important thing is to distinguish between money that is genuinely required in the near future and money that is simply sitting idle because a decision has not been made. Once that distinction is clear, it becomes much easier to decide where the money should go,” Shastri said.

What about the ₹5 lakh DICGC insurance limit?

There is another factor to consider when a large amount is kept in a bank account: deposit insurance.

The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance cover of up to ₹5 lakh per depositor per bank, including principal and interest, subject to the applicable rules.

So, if you have ₹10 lakh in eligible deposits with one bank, the entire amount is not covered by DICGC insurance. The insurance cover is capped at ₹5 lakh per depositor per bank.

This does not mean that money above ₹5 lakh is automatically unsafe. It simply means that the DICGC insurance protection does not extend beyond the ₹5 lakh limit for that depositor in that bank.

Deposits with different banks are treated separately for this purpose.