PSBs are now offering the best fixed deposit (FD) interest rates for senior citizens and a number of banks are offering returns of nearly 8% per annum on specific tenures. For retirees and for those who live off fixed income, this is the right time to put in their hard-earned money, especially as Reserve Bank of India's rate cuts will force overall deposit rates down in the months ahead.
Why this is a good time to book your FD
Since the Reserve Bank of India has already begun a rate-cut cycle, banks have begun cutting their fixed deposit rates gradually, especially for the first- and mid-term tenures. Experts say that senior citizens must capitalize on the current offers, as rates now fixed will continue to be fixed even if the overall rate scenario weakens further. Also, senior citizen FD rates usually carry an additional premium of about 0.5% over normal rates, so they are an even more lucrative option for steady income in a declining interest rate environment.
Public sector banks with the highest rates
A number of public sector banks, in June 2025, are among the highest paying ones with FD rates that are still highly competitive for senior citizens. For instance, Bank of Maharashtra is providing rates of up to 7.95% on certain mid-term deposits. Punjab & Sindh Bank is offering up to 7.75% on its special 555-day plan. State Bank of India offers 7.00% to 7.40% based on tenure, while Union Bank of India's rates are up to 7.75%. Indian Bank is paying 7.25% to 7.65% on popular one-year and 400 to 555-day deposits, while Bank of Baroda is paying up to 7.80% for some of its non-callable deposits.
Why close to 8% is an attractive rate
For senior citizens who are looking for safe and certain returns, fixed deposits with returns almost at 8% are quite appealing. These deposits are backed by the Deposit Insurance and Credit Guarantee Corporation (DICGC) for amounts up to ₹5 lakh, providing a level of security that is hard to match in market-linked instruments. Compared to other government-backed saving options, which currently offer lower returns, these FDs allow retirees to lock in strong yields for a defined period. Since inflation is starting to ease, real returns on such deposits are bound to stay positive.
How to invest now
For investors, financial planners suggest targeting tenures between 400 and 555 days at which the highest rates are available. Locking in fixed deposits now guarantees today's better yields, even as aggregate rates could drift lower in the subsequent quarters. Most investors also follow a laddered FD approach—diversifying investments across multiple maturities—to ensure liquidity and flexibility. This strategy ensures that some portion of the portfolio matures periodically, allowing it to be reinvested according to the future trend of interest rates.
For seniors, the prevailing situation is a good chance to secure FD rates of almost 8% with reliable public sector banks. With rate cuts trickling into the banking system in stages, these good rates will not last forever. By making judicious investments now and opting for tenures that match cash flow horizons, retirees can harvest a stable and attractive stream of income in the future.
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