Fixed deposit investors may soon face another round of interest rate cuts after the RBI announced reducing the repo rate for the fourth time this year. The central bank on Friday reduced the interest rate by 25 basis points to 5.25%, which is down 125 basis points from the 6.5% level at the start of the year. Banks and small finance banks have already lowered the FD interest rates after RBI’s previous rate cuts.The central bank had already lowered the benchmark rate three times earlier this year 25 basis points each in February and April, followed by a 50-basis point cut in June. There were no changes in the August and October MPC reviews.
Although banks had already reduced FD rates by October, they were still in the process of transmitting the impact of the first three rate cuts. With the fourth cut now in place, another round of revisions is considered almost inevitable. While existing fixed deposits will continue to earn the promised interest until maturity, investors opening new deposits are likely to receive lower returns.RBI’s repo rate cuts – What comes nowThe latest repo rate cut has come at a time when interest rates on post office small savings schemes have stayed unchanged for more than a year, even as banks have trimmed the returns on fixed deposits in recent months. The RBI’s decision has been driven by two major factors: a sharp decline in retail inflation and significant improvement in GDP growth.It is yet to be seen whether the central bank will continue easing rates in upcoming months. The December meeting was the last MPC in this calendar year, leaving only one more policy review in the current financial year, scheduled for February 2026. Although the possibility of more cuts in the next two to three quarters cannot be dismissed, expectations of another reduction immediately in February remain low. Despite cumulative cuts of 125 basis points, the repo rate still has not dropped to the historic lows seen during the COVID-19 period.Though banks might reduce the interest rates on your fixed deposits, there are still some ways to maximise your returns, utilising current rates.Act nowEven if the banks and SFBs decide to lower the interest rates, it may take time to pass on today’s reduction. Alongside, the decline in deposit rates might not necessarily be proportional to the 25-basis point cut. There is also no clarity on how soon lenders will adjust their rate sheets. Hence, investors keen on preserving returns should act quickly while relatively high rates are still available. Some banks continue to offer 7.5% or more on long-term FDs, though many of the highest rates are currently being offered by small finance banks. Several major banks are also providing 7% or above on longer-tenure deposits, offering scope for mid- to long-term investors to lock in favourable rates, according to ET.Safety firstWhile going with banks that are considered risky, savers should try structuring deposits in a manner that keeps the total amount within the Rs 5 lakh deposit insurance cover.Go for these investmentsAs interest rates move downward, medium- and long-term deposits could remain attractive for a while. Lenders tend to reduce rates on shorter-term deposits first, while longer-maturity rates typically take more time to adjust. Investors with no immediate liquidity needs may therefore benefit by choosing FDs with longer horizons.FD ladderingSenior citizens may continue relying on the FD laddering strategy to balance liquidity with returns during volatile rate cycles. Breaking the investment amount into deposits with different maturities ensures that only a portion gets renewed at lower rates when the cycle bottoms out. As interest rates rise again over time, maturing deposits can then be reinvested at higher rates, helping depositors maintain above-average returns.Consider corporate FDThose willing to accept higher risk in exchange for higher yields also have the option of corporate fixed deposits, though these instruments carry greater risk than traditional bank FDs.
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