RBI rate cut to hit Fixed Deposit returns: What investors can do now

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The Reserve Bank of India (RBI) cut its repo rate by 25 basis points to 6 per cent on Wednesday in its first monetary policy meeting for the 2025–26 financial year. The decision by the Monetary Policy Committee (MPC) follows a similar cut in February, when the rate was brought down from 6.5 per cent to 6.25 per cent.  

 

This second cut in three months could affect returns for fixed deposit (FD) holders, especially those relying on steady interest income.

 

Why FD rates are falling

 

Some of the country’s largest lenders have already lowered their deposit rates.  

 

HDFC Bank reduced interest rates on select FD tenures below ₹3 crore from April 1, 2025.   State Bank of India ended its Amrit Kalash scheme on March 31. The special deposit had offered 7.10 per cent interest for a 400-day term.  

 

Charu Pahuja, group director and chief operating officer at Wise FinServ, said, “This surplus liquidity has reduced banks’ dependence on high-cost deposits, allowing them to cut rates while maintaining their net interest margin.”

 

Banks had earlier introduced special schemes to attract deposits. “Now they are discontinuing them or lowering the rates on them,” said Santosh Agarwal, CEO of Paisabazaar.  Also Read: RBI MPC meeting LIVE

 

What investors can consider now

 

With returns slipping, investors are being encouraged to rethink their FD strategies.  

 

Adhil Shetty, CEO of Bankbazaar.com, said, “Choose an FD tenure that provides a balance between returns and the horizon for which you can invest.”

 

He added that senior citizens could still benefit from the additional 50 basis points usually offered to them. “Depositors are advised to lock into higher rates available now. HNW depositors can benefit from higher rates available on non-callable deposits,” said Shetty.

 

For those worried about inflation, he suggested keeping some exposure to equities. “Senior citizens should use FDs for stable income, but must also allocate a portion of their portfolio into equities for inflation-adjusted returns,” he said.

 

Wider portfolio planning in a falling rate cycle

 

Aman Gupta, director of RPS Group, said FD investors must be more active in tracking policy trends. “Start with banks and NBFCs that offer the best rates—small finance banks tend to pay 0.5–1% higher than the more orthodox banks,” he said.

 

Gupta said tax treatment also plays a role. “Post FD returns after the tax slab are not inflation-indexed; tax saving FDs or Senior Citizen Savings Scheme (SCSS) outperform inflation post taxation and therefore are better alternatives,” he said.

 

He also pointed to hybrid options. “Channel a portion of the savings towards instruments such as arbitrage or conservative hybrid funds which offer better stability than equities but tend to be volatile relative to bonds,” he said.

 

He added that investors should avoid defaulting to high-risk assets. “Sustain an emergency cash fund of 6–12 months of expenses while alternatives are explored,” Gupta said.

 

Explore staggered investments

 

Siddharth Maurya, founder and managing director of Vibhavangal Anukulakara Private Limited, suggested breaking up FD investments across different tenures.   “Try out debt mutual funds, corporate bonds, or RBI floating rate savings bonds as they may yield superior returns after tax,” he said. “Employ FD laddering—divide your portfolio into several FDs with staggered maturities, for example, 1, 2 and 3 years.”

 

He also advised checking renewal dates. “If you have shorter-term deposits, make sure to renew them reliably to bypass auto-renewal at devalued rates,” said Maurya. 

"Investors can also look for an option of corporate deposits like Shriram Finance Ltd, Mahindra Finance Ltd, Bajaj Finance Ltd, PNB Housing Finance Ltd which are offering higher rates than banks and can give 100 bps extra point which can matter alot while investing substantial amount," said Bharat Mundada, Director, Mundada Finserv Private Limited.

   

Shetty also listed a few strategies to consider:

 

Lock in current FD rates: Consider locking in funds now for medium to long-term tenures.

 

Use laddering: Break up FDs into different maturity periods to manage reinvestment risk and maintain liquidity.

 

Explore small savings schemes: Schemes like SCSS or POMIS can offer better yields for risk-averse investors.

 

Look at AAA-rated corporate FDs and debt mutual funds: These may offer slightly higher returns, though with some market or credit risk.

 

The cut in repo rate comes amid global economic shifts. It follows US President Donald Trump’s reciprocal tariffs, including a 104 per cent levy on Chinese goods, which has unsettled international markets. 

Compiled by Bank Bazaar