RBI repo rate cut: Depositors need to brace for lower FD rates, rethink savings strategy

Depositors need to adapt their investment strategies to navigate the changing interest rate landscape.

The Reserve Bank of India's (RBI) 50 basis-point repo rate cut to 5.5 percent on June 6, has significant implications for depositors. With this third consecutive rate reduction since February 2025, banks are expected to lower their fixed deposit (FD) interest rates, impacting risk-averse investors and senior citizens who rely on stable returns.

Impact on depositors

“For depositors, a 50-bps repo rate cut may not slash fixed deposit rates overnight, but it does signal the beginning of a downward trend,” says Adhil Shetty, CEO of BankBazaar. Banks are likely to start trimming deposit rates, especially for short- and medium-term tenures, he adds.

Banks like SBI, HDFC Bank, and Bank of India have already started cutting FD rates, with reductions ranging from 10-70 basis points since February 2025.

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Choose a laddering strategy, which involves dividing your FD investments into multiple tenures to effectively manage interest rate risks and maintain liquidity. By spreading investments across various FDs with staggered maturity periods, you ensure regular access to funds while optimising returns. This mitigates interest rate risks and maintains liquidity.

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“If you’ve been waiting to lock in current rates, some of which still hover around 7.5 percent, now may be the time,” advises Shetty. Senior citizens, who get an extra 25 to 50 basis points, should consider locking in longer tenures.

Financial advisors recommend considering alternative to fixed deposits like corporate FDs, debt mutual funds and government securities. These options offer potentially higher returns than traditional FDs but come with varying levels of risk. Evaluate them based on your financial goals, risk tolerance, and investment horizons.