FD Interest Rates: Will the good days return for FD investors following the 0.25% hike in the repo rate?
FD Interest Rates: There is welcome news for investors who have been grappling with low interest rates on fixed deposits for the past four years. Following a three-day meeting of the Reserve Bank's Monetary Policy Committee (MPC), a decision to hike policy rates was announced on Wednesday, October 7. The central bank has raised the repo rate from 5.25% to 5.50%. This marks the first time the Reserve Bank has increased the repo rate since February 2023; prior to this, the trend had been one of consecutive rate cuts or status quo.
Inflationary risks were mounting globally due to geopolitical tensions, high crude oil prices, and aggressive policy decisions by the US Federal Reserve. In India, too, the retail inflation rate stood at 4.84% in August. Although this figure remained within the Reserve Bank's upper tolerance limit of 6%, a rising trend was clearly visible. To curb this inflation, the central bank has taken the step of raising rates by 0.25%.
**Growing pressure on banks to hike FD rates**
Shortly after the RBI's announcement, the non-banking financial company (NBFC) Bajaj Finance raised its fixed deposit rates by up to 0.40%. Experts believe that public and private sector banks will also soon revise their FD rates. According to BankBazaar CEO Adhil Shetty, new deposits will be the first to benefit from the increased rates. At the same time, customers will need to assess how this change impacts both their loans and their savings.
The pressure on banks to raise interest rates stems not only from the repo rate hike but also from liquidity dynamics. As of October 2, 2026, the banking sector's credit-deposit ratio stood at 80.83%. Against total deposits of ₹27.62 lakh crore, banks had disbursed loans amounting to ₹22.33 lakh crore. When banks lend heavily while the pace of deposit growth remains sluggish, they are compelled to offer better interest rates on Fixed Deposits (FDs) to mobilize new capital. Furthermore, Post Office schemes like the Senior Citizen Savings Scheme and Sukanya Samriddhi Yojana offer fixed interest rates of up to 8.2%. Meanwhile, yields on government bonds (G-secs) are hovering between 6.79% and 7.22%. Given this scenario, banks must make their FD rates attractive to lure investors.
**When and for which tenures will returns increase?**
Raj Khosla, founder of MyMoneyMantra, states that there is no government mandate requiring banks to hike interest rates immediately. Typically, banks adjust their rates anywhere from a few days to 4–6 weeks after policy changes by the RBI. This decision depends entirely on the banks' operational status and liquidity requirements.
However, will banks raise interest rates on long-term FDs as well? Anand Rathi, co-founder of Mira Money, believes that banks are unlikely to significantly hike rates for long-term deposits. Banks perceive the current inflationary pressure as temporary and would prefer to avoid the burden of paying higher interest over the long haul. They are more likely to raise rates on new short- or medium-term FDs first. Currently, Small Finance Banks are offering interest rates ranging from 7.10% to 8.10%, whereas major public sector banks offer 6.45%–6.60% and private banks offer around 6.30%–7%.
**What is the right plan for investors?**
Those who already hold existing FDs need not worry. Existing deposits will continue to earn interest at the pre-determined rate; however, the current period could be quite favorable for making new investments or renewals. Experts suggest that investors should adopt the ‘laddering’ strategy during such times.
Laddering means not locking up your entire capital in a single large Fixed Deposit (FD). Instead, you should divide your total amount into smaller portions and invest them in FDs that mature at different times. This ensures that some of your FDs mature at regular intervals. Upon maturity, you can reinvest the proceeds at the prevailing, potentially higher interest rates. Additionally, you will have sufficient funds available to meet any emergency needs. By following this approach, investors can consistently earn better returns despite fluctuations in interest rates.
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