Interest rates on your fixed deposits (FD) and savings bank accounts look set to head south. A sharp cut of 40 basis points (bps) in the repo rate announced by the Reserve Bank of India (RBI) earlier is now expected to have an impact on your savings bank rates. The central bank has announced repo rate cuts of 115 bps since March 25.
How does this reduction in the repo rate impact depositors?
As the benchmark policy rate goes down, the interest rates on fixed income instruments are also expected to follow suit. Existing FD investors don’t have anything to worry about until their deposits come up for renewal. But fresh investments in FDs and RDs may give you much lower returns.
As banks pass on lower loan rates to borrowers, it is but natural that deposit and savings account rates too decline.