RBI cuts repo rate, here is what it means for your fixed deposits

Several banks have cut FD rates, with reductions ranging from 50 to 100 basis points since February 2025.

The Reserve Bank of India's (RBI) decision to cut the repo rate by 25 basis points (bps) to 5.25 percent on December 5 has wide implications for depositors. The fourth rate cut since February would likely banks lowering their fixed deposit rates, impacting risk-averse investors and senior citizens who rely on FDs' stable returns.

The rate cut, announced by RBI governor Sanjay Malhotra, won't immediately lead to slashing of fixed deposit rates but banks are likely to trim deposit rates, particularly for short and medium-term tenures.

Adhil Shetty, CEO, BankBazaar said, “Banks have been cutting fixed deposit rates across tenures, with the steepest adjustments in the one to two year buckets. High-yield slabs are already limited and another easing step will push peak rates down further.”

Several banks have lowered FD rates since February, when the MPC cut the rate for the first time after May 2020, with reductions ranging from 50 to 100 basis points since February. "For instance, SBI’s highest FD rate for regular depositors under the Amrit Vristhi scheme has moved from 7.1% in January to 6.6% now. HDFC Bank’s peak rate has similarly declined from 7.25% to 6.6%, indicating only partial pass-through of the 100-bps cut," said Saurabh Jain, Co-Founder & CEO, Stable Money.

Meanwhile, several mid-sized and small finance banks have adjusted far more sharply, with reductions in some cases exceeding 150–225 basis points. "This highlights that FD pricing is influenced not only by repo rate movements but also by system liquidity, competition for deposits, credit demand, and each bank’s ALM considerations," Jain said.

The RBI's rate cut is expected to boost economic growth and depositors should adjust their investment strategies to navigate the shifting interest-rate environment.

Consider a laddering strategy for FD investments by dividing them into multiple tenures to manage interest rate risks and maintain liquidity. Spread investments across FDs with staggered maturity periods to access funds regularly and optimise returns, mitigating interest rate risks and maintaining liquidity.

Shetty said, “Savers and retirees should consider locking into longer tenures now, while the higher slabs are still available.”   Senior citizens continue to receive a 0.50 percent premium, yet even that buffer may narrow as the system aligns with the lower policy rate.

Financial advisers also suggest exploring alternatives to fixed deposits such as corporate FDs, debt mutual funds and government securities, which may offer higher returns but come with varying risk levels. Assess these options based on your financial goals, risk tolerance, and investment horizons.