Will RBI’s Interest Rate Cut Impact Your Bank FD Returns? Here’s What Experts Say

The Reserve Bank of India’s latest monetary policy decision has triggered a big question among depositors: Will fixed deposit (FD) returns fall now that the RBI has reduced interest rates? On 5 December, the central bank cut the repo rate by 0.25%, bringing it down to 5.25%. All six members of the Monetary Policy Committee (MPC) voted in favour of the rate cut during the meeting that began on 3 December.

While borrowers anticipate lower loan rates, FD investors are wondering whether their returns will shrink. Experts believe that although the impact will not be immediate, medium-term changes in FD rates are likely.

FD Rates May Decline Gradually, Not Overnight

Financial analysts say that banks typically do not revise FD interest rates the very moment RBI changes the policy rate. However, rate trends over recent months suggest that FD returns are already on a downward path, and the latest repo rate cut may accelerate this shift.

BankBazaar CEO Adhil Shetty explains, “Banks have been reducing FD rates across multiple tenures over the past few quarters. The biggest decline has been in two-year fixed deposits. Only select FD tenures are still offering attractive returns.”

This indicates a slow but steady correction in deposit rates aligned with the monetary easing that began earlier in the year.

FD Rates Have Already Dropped Up to 1% Since February

RBI initiated the first rate cut of the year in February. Since then, banks across the country have trimmed FD interest rates by 0.5% to 1%.
Stable Money Co-founder and CEO Saurabh Jain highlights the trend with real examples:

• SBI’s Amrit Varsha scheme for regular depositors has seen rates fall from 7.1% to 6.6%.

• HDFC Bank’s peak FD rate has also reduced from 7.1% to 6.6%.

Some mid-size and small finance banks have implemented even sharper cuts, reducing interest rates on specific FDs by 1.5% to 2.25%. This reduction is influenced not only by repo rate movements but also by other market conditions such as liquidity, competition for deposits, and overall credit demand in the banking system.

Should Investors Change Their Strategy Now?

Market experts believe that the latest repo rate cut is aimed at supporting economic growth. However, for depositors, this means the environment of falling interest rates may continue for a while. As a result, investors might need to rethink their approach to fixed-income investments.

Saurabh Jain notes that the current trend signals deeper structural shifts: “The decline in FD returns reflects not just the impact of policy rates but also changes in liquidity and deposit competition. Investors must factor this into their financial planning.”

Experts suggest several strategies:

1. Diversify Across FD Tenures

Splitting investments into short-, medium-, and long-term FDs can help maintain liquidity while reducing the risk of losing out if rates fall further.

2. Retirees Should Consider Long-Term FDs

For senior citizens, locking into longer-tenure deposits may be beneficial. They already earn around 0.50% higher interest, and securing current rates for a longer period can shield them from future rate cuts.

3. Explore Alternatives to Bank FDs

Investors who want stable returns may also evaluate:

• Corporate fixed deposits

• Debt mutual funds

• Government securities
  These options can offer potentially higher returns depending on risk appetite.

What Should Investors Do Next?

Falling interest rates can be worrying for those who rely on FD returns, especially retirees. However, understanding market trends and diversifying wisely can help investors stay protected. With RBI signalling a softer interest rate cycle, depositors should regularly review their portfolios and choose a mix of secure and growth-oriented assets.