The Reserve Bank of India's (RBI) recent decision to cut the repo rate by 25 basis points to 5.25% has significant implications for fixed deposit (FD) investors. While this move aims to boost economic growth by encouraging spending and investment, it is likely to push FD returns lower, presenting a challenge for risk-averse savers who rely on these deposits for steady income.

Impact of the Repo Rate Cut on FD Rates

The repo rate is the interest rate at which the RBI lends money to commercial banks. When the RBI lowers the repo rate, banks' borrowing costs decrease. Consequently, banks may reduce the interest rates they offer on FDs to protect their net interest margins. This inverse relationship between the repo rate and FD rates means that the recent repo rate cut is expected to lead to a further decline in FD interest rates across various banks and financial institutions.

This is the fourth time the RBI has cut the repo rate this year, bringing the total reduction to 125 basis points. Banks have already lowered FD rates in response to previous cuts, and this latest reduction is expected to trigger another round of revisions. While existing FDs will continue to earn the contracted interest rate until maturity, new deposits are likely to receive lower returns.

Last Chance for Investors?

With FD rates poised to decrease further, financial experts advise investors, especially retirees, to consider locking in current rates for longer tenors while they are still available. This is because deposit rates are likely to soften further in the coming months. By securing FDs at the existing, relatively higher rates, investors can safeguard their returns before they diminish.

Comparing Latest Rates of Lenders

Despite the anticipated downward trend, some banks and small finance banks (SFBs) are still offering competitive FD rates. It's crucial for investors to compare the latest rates from different lenders before making a decision.

Here's a comparison of FD rates from a few major banks as of December 2025:

• State Bank of India (SBI): Offers 6.45% for regular citizens on two-year FDs and 6.95% to senior citizens. For 5-year to 10-year tenures, the rate is 6.05% for regular citizens and 7.05% for senior citizens.
• HDFC Bank: Provides 6.60% interest to general citizens and 7.10% to senior citizens on 18-month deposits.
• ICICI Bank: Offers 6.6% interest on two-year and five-year FDs to general depositors and 7.2% to senior citizens.
• Jana Small Finance Bank: Offering up to 8% to regular and senior citizens on five year tenure.
• Suryoday Small Finance Bank: Offering 8% interest rate for regular and senior citizens on fixed deposits with a five-year tenure.

Small finance banks and NBFCs generally offer higher FD interest rates compared to PSU banks and large private sector banks. However, it's important to consider the creditworthiness and financial stability of the bank before investing, as institutions with stronger financials may offer slightly lower but safer returns.

Factors Influencing FD Rates

Several factors influence FD interest rates, including:

• RBI's Repo Rate: As discussed, changes in the repo rate directly impact FD rates.
• Economic Conditions: The overall health of the economy, including economic growth, inflation, and market liquidity, affects FD rates.
• Inflation: High inflation often leads to higher FD rates to encourage savings and reduce spending.
• Bank's Liquidity: If banks face a shortage of funds, they may raise FD rates to attract more deposits.
• Demand and Supply of Credit: Increased demand for loans can prompt banks to offer higher FD rates to attract funds.
• Competition: Competition among banks also plays a role in determining FD rates, with private banks often offering higher rates to attract customers.
• FD Tenure: Longer tenures usually offer higher interest rates.

Strategies for Investors

Given the current scenario, FD investors can consider the following strategies:

• Lock in at Current Rates: Invest in FDs now to take advantage of the existing, relatively higher rates before they fall further.
• Diversify Portfolio: Consider diversifying investments across different asset classes to mitigate risk and potentially enhance returns.
• Laddering: Use FD laddering by investing in multiple FDs with staggered maturity periods to maintain liquidity and potentially benefit from future rate increases.
• Stay Informed: Keep track of market trends, economic indicators, and RBI policies to make informed decisions.

The RBI's repo rate cut presents a mixed bag for FD investors. While it may lead to lower returns, understanding the dynamics at play and adopting appropriate strategies can help investors navigate the changing landscape and optimize their fixed deposit investments.