Fixed deposit rates may fall after RBI cut - what investors can do now

The Reserve Bank of India (RBI) on Friday reduced the repo rate to 6.25%, marking the first cut in nearly five years. The repo rate is the interest rate at which the central bank lends money to commercial banks. The 25 basis points (bps) reduction may encourage banks to lower lending rates, making loans cheaper, but it could also lead to a drop in fixed deposit (FD) interest rates, affecting investors who rely on them for returns, particularly senior citizens.

 

What fixed deposit investors can do

 

With interest rates likely to decline further, FD investors may need to rethink their approach. Adhil Shetty, CEO of BankBazaar, shared a few strategies investors can consider:

 

 

Lock in current rates  

Those planning to open a new FD may want to do so soon to secure existing rates before banks lower them.

 

Explore alternative investments  

As FD returns decrease, investors could look into debt mutual funds, corporate bonds, or equity-linked savings schemes (ELSS) based on their risk appetite.

 

Ladder FDs  

Splitting investments into multiple FDs with different tenures, a strategy known as FD laddering, can help manage the impact of falling interest rates.

 

Review existing FDs  

Checking if current FDs allow premature withdrawals could be beneficial. If the penalty is low, reinvesting in higher-yielding instruments might be an option.

 

What is the laddering strategy?

 

Instead of putting the entire amount into one FD, investors can split it across different tenures to ensure liquidity and optimise returns.

 

"For instance, if you have Rs 20 lakh to invest, you can split it into four FDs of Rs 5 lakh each, with maturities of one year, 1.5 years, two years, and 2.5 years. This provides liquidity as each FD matures," said Vijay Kuppa, CEO of InCred Money.

 

Laddering also helps keep deposits covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance, which protects up to Rs 5 lakh per depositor per bank. Additionally, spreading interest earnings across multiple FDs can help some investors stay below the tax deduction at source (TDS) threshold of Rs 50,000 for senior citizens.

 

Meanwhile, the Union Budget 2025 has introduced tax relief for the middle class, with taxable income up to Rs 12 lakh now exempt under the new regime. Combined with the RBI’s rate cut, this offers a financial cushion for salaried individuals, giving them more flexibility to save and invest.  Take a look at the current FD rates provided by banks, as provided by PaisaBazaar  Small Finance Banks  NorthEast Small Finance Bank  Highest slab: 9%  Tenure: 18 months 1 day to 36 months  1-year rate: 7%  3-year rate: 9%  5-year rate: 8%  Suryoday Small Finance Bank  Highest slab: 8.60%  Tenure: Above 2 years to 3 years  1-year rate: 8.05%  3-year rate: 8.60%  5-year rate: 8.25%  Ujjivan Small Finance Bank  Highest slab: 8.25%  Tenure: 12 months  1-year rate: 8.25%  3-year rate: 7.20%  5-year rate: 7.20%  Utkarsh Small Finance Bank  Highest slab: 8.50%  Tenure: 2 years to 3 years; 1500 days  1-year rate: 8%  3-year rate: 8.50%  5-year rate: 7.75%  Private Sector Banks  Axis Bank  Highest slab: 7.25%  Tenure: 15 months to less than 2 years  1-year rate: 6.70%  3-year rate: 7.10%  5-year rate: 7%  Bandhan Bank  Highest slab: 8.05%  Tenure: 1 year  1-year rate: 8.05%  3-year rate: 7.25%  5-year rate: 5.85%  HDFC Bank  Highest slab: 7.40%  Tenure: 4 years 7 months (55 months)  1-year rate: 6.60%  3-year rate: 7%  5-year rate: 7%  ICICI Bank  Highest slab: 7.25%  Tenure: 15 months to 2 years  1-year rate: 6.70%  3-year rate: 7%  5-year rate: 7%  Kotak Mahindra Bank  Highest slab: 7.40%  Tenure: 390 days to less than 23 months  1-year rate: 7.10%  3-year rate: 7%  5-year rate: 6.20%  YES Bank  Highest slab: 7.75%  Tenure: 18 months to less than 24 months  1-year rate: 7.25%  3-year rate: 7.25%  5-year rate: 7.25%  Public Sector Banks  Bank of Baroda  Highest slab: 7.30%  Tenure: 400 days - Bob Utsav  1-year rate: 6.85%  3-year rate: 7.15%  5-year rate: 6.80%  Bank of India  Highest slab: 7.30%  Tenure: 400 days  1-year rate: 6.80%  3-year rate: 6.50%  5-year rate: 6%  Canara Bank  Highest slab: 7.40%  Tenure: 3 years to less than 5 years  1-year rate: 6.85%  3-year rate: 7.40%  5-year rate: 6.70%  Indian Bank  Highest slab: 7.30%  Tenure: 400 days - IND SUPER  1-year rate: 6.10%  3-year rate: 6.25%  5-year rate: 6.25%  Indian Overseas Bank  Highest slab: 7.30%  Tenure: 444 days  1-year rate: 7.10%  3-year rate: 6.50%  5-year rate: 6.50%  Punjab National Bank  Highest slab: 7.25%  Tenure: 400 days  1-year rate: 6.80%  3-year rate: 7%  5-year rate: 6.50%  Punjab & Sind Bank  Highest slab: 7.45%  Tenure: 555 days  1-year rate: 6.30%  3-year rate: 6%  5-year rate: 6%  State Bank of India  Highest slab: 7.25%  Tenure: 444 days - Amrit Vrishti  1-year rate: 6.80%  3-year rate: 6.75%  5-year rate: 6.50%  Union Bank of India  Highest slab: 7.30%  Tenure: 456 days  1-year rate: 6.80%  3-year rate: 6.70%  5-year rate: 6.50%