FD rates falling after RBI's big rate cut: Why FD investors must act now to avoid losing lakhs
Fixed deposit investors are feeling the heat as the RBI slashes the repo rate to 5.5%—its third cut in 2025. With FD rates already slipping by up to 70 bps, experts urge savers to lock in high returns before they vanish.
- Jun 6, 2025,
- Updated Jun 6, 2025 7:10 PM IST
FD rates and RBI rate cut:The Reserve Bank of India (RBI) has announced its third repo rate cut of 2025, slashing it by 50 basis points to bring the rate down to 5.5%. This latest policy easing continues the RBI’s trend of aggressive rate cuts aimed at boosting economic momentum. While the move spells relief for borrowers, it puts fixed deposit (FD) investors under pressure as banks respond by trimming deposit rates.
Alongside the repo rate, the RBI also reduced the Cash Reserve Ratio (CRR) by 100 basis points—from 4% to 3%—a phased move starting in September that is expected to inject nearly ₹2.5 lakh crore into the banking system. The central bank has also revised its policy stance from ‘accommodative’ to ‘neutral’, signaling that future rate moves will hinge on inflation and growth data. Retail inflation is currently tracking below the RBI’s 4% target.
FD rates already slipping
With the cumulative 100 basis points cut so far in 2025, deposit rates have started sliding. The RBI had reduced the repo rate by 25 basis points each in February and April 2025. Following these back-to-back cuts, banks have sharply lowered interest rates on fixed deposits.
According to an SBI Research report, "FD rates have been reduced in the range of 30-70 bps since February 2025."
Alongside the decline in fixed deposit rates, banks are also trimming interest rates on savings accounts. "Banks have already reduced interest rates on savings accounts to the floor rate of 2.70%," the SBI report noted.
“While the latest 50 bps cut won’t impact FD rates immediately, it clearly marks the beginning of a softening cycle,” said Adhil Shetty, CEO of BankBazaar.com. He advised senior citizens to lock in current FD rates, some of which are still around 7.5%, especially for longer tenures where they earn an additional 25–50 basis points.
“The recent RBI rate cut signals softer FD returns ahead, prompting conservative investors to reassess their strategies,” said Prashant Mishra, Founder & CEO of Agnam Advisors.
What should investors do now?
As returns from traditional fixed income instruments erode, financial advisors are urging investors to reassess their strategies.
Mishra of Agnam Advisors suggested short-term debt funds or high-quality corporate bond funds as low-risk alternatives with better post-tax yields.
For those comfortable with moderate risk, select hybrid or conservative allocation funds may offer inflation-beating returns.
However, he stressed that safety and liquidity remain key, so any alternative must preserve capital and ensure predictable returns.
Aman Gupta, Director at RPS Group, recommends exploring higher-yielding options. “Small finance banks usually offer 0.5% to 1% more than mainstream banks. Evaluate these options while also reviewing post-tax returns,” he said. Gupta noted that instruments like the Senior Citizens Savings Scheme (SCSS) and tax-saving FDs still provide inflation-beating returns after taxes.
Some banks continue to offer fixed deposit interest rates of 8% or more on longer tenures. However, many of the highest rates are currently being provided by Small Finance Banks, which may carry a higher risk profile. It's crucial to assess the financial stability of the bank before investing, especially if you're chasing high returns.
He also suggested diversifying into hybrid or arbitrage funds for a balance between safety and growth. “These are more stable than equities but can deliver better yields than bonds,” he said, adding that investors should maintain an emergency fund covering 6–12 months of expenses while exploring alternatives.
To safeguard your investment, consider splitting your fixed deposits to ensure they fall within the ₹5 lakh limit covered by deposit insurance. This includes both principal and interest and applies per depositor per bank under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme.
Meanwhile, several large commercial banks are also offering competitive rates—typically 7% or above—on long-term FDs, providing a balance between return and safety.
Current FD rates (Source: Bankbazaar.com)
| Axis Bank | 3.00% - 7.05% | 3.50% - 7.55% |
| Bandhan Bank | 3.00% - 7.75% | 3.75% - 8.25% |
| Bank of Baroda | 4.00% - 7.10% | 4.50% - 7.60% |
| Central Bank of India | 3.50% - 7.15% | 4.00% - 7.65% |
| HDFC Bank | 3.00% - 7.05% | 3.00% - 7.05% |
| ICICI Bank | 3.00% - 7.05% | 3.00% - 7.55% |
| IDBI Bank | 3.00% - 7.00% | 3.50% - 7.50% |
| IDFC FIRST Bank | 3.00% - 7.25% | 3.50% - 7.75% |
| IndusInd Bank | 3.50% - 7.75% | 4.00% - 8.25% |
| Karnataka Bank | 3.50% - 7.15% | 3.75% - 7.55% |
| Kotak Mahindra Bank | 2.75% - 7.15% | 3.25% - 7.65% |
| Bank of Maharashtra | 2.75% - 6.75% | 3.25% - 7.25% |
| Punjab National Bank | 3.50% - 7.10% | 4.00% - 7.60% |
| RBL Bank | 3.50% - 7.75% | 4.00% - 8.25% |
| South Indian Bank | 2.90% - 7.15% | 3.40% - 7.65% |
| State Bank of India | 3.50% - 6.90% | 4.00% - 7.40% |
| Tamilnad Mercantile Bank | 4.10% - 7.30% | 4.10% - 7.80% |
| UCO Bank | 2.90% - 7.05% | 3.15% - 7.55% |
| Union Bank of India | 3.50% - 7.15% | 3.75% - 7.40% |
| YES Bank | 3.25% - 7.50% | 3.75% - 8.25% |
FD rates and RBI rate cut:The Reserve Bank of India (RBI) has announced its third repo rate cut of 2025, slashing it by 50 basis points to bring the rate down to 5.5%. This latest policy easing continues the RBI’s trend of aggressive rate cuts aimed at boosting economic momentum. While the move spells relief for borrowers, it puts fixed deposit (FD) investors under pressure as banks respond by trimming deposit rates.
Alongside the repo rate, the RBI also reduced the Cash Reserve Ratio (CRR) by 100 basis points—from 4% to 3%—a phased move starting in September that is expected to inject nearly ₹2.5 lakh crore into the banking system. The central bank has also revised its policy stance from ‘accommodative’ to ‘neutral’, signaling that future rate moves will hinge on inflation and growth data. Retail inflation is currently tracking below the RBI’s 4% target.
FD rates already slipping
With the cumulative 100 basis points cut so far in 2025, deposit rates have started sliding. The RBI had reduced the repo rate by 25 basis points each in February and April 2025. Following these back-to-back cuts, banks have sharply lowered interest rates on fixed deposits.
According to an SBI Research report, "FD rates have been reduced in the range of 30-70 bps since February 2025."
Alongside the decline in fixed deposit rates, banks are also trimming interest rates on savings accounts. "Banks have already reduced interest rates on savings accounts to the floor rate of 2.70%," the SBI report noted.
“While the latest 50 bps cut won’t impact FD rates immediately, it clearly marks the beginning of a softening cycle,” said Adhil Shetty, CEO of BankBazaar.com. He advised senior citizens to lock in current FD rates, some of which are still around 7.5%, especially for longer tenures where they earn an additional 25–50 basis points.
“The recent RBI rate cut signals softer FD returns ahead, prompting conservative investors to reassess their strategies,” said Prashant Mishra, Founder & CEO of Agnam Advisors.
What should investors do now?
As returns from traditional fixed income instruments erode, financial advisors are urging investors to reassess their strategies.
Mishra of Agnam Advisors suggested short-term debt funds or high-quality corporate bond funds as low-risk alternatives with better post-tax yields.
For those comfortable with moderate risk, select hybrid or conservative allocation funds may offer inflation-beating returns.
However, he stressed that safety and liquidity remain key, so any alternative must preserve capital and ensure predictable returns.
Aman Gupta, Director at RPS Group, recommends exploring higher-yielding options. “Small finance banks usually offer 0.5% to 1% more than mainstream banks. Evaluate these options while also reviewing post-tax returns,” he said. Gupta noted that instruments like the Senior Citizens Savings Scheme (SCSS) and tax-saving FDs still provide inflation-beating returns after taxes.
Some banks continue to offer fixed deposit interest rates of 8% or more on longer tenures. However, many of the highest rates are currently being provided by Small Finance Banks, which may carry a higher risk profile. It's crucial to assess the financial stability of the bank before investing, especially if you're chasing high returns.
He also suggested diversifying into hybrid or arbitrage funds for a balance between safety and growth. “These are more stable than equities but can deliver better yields than bonds,” he said, adding that investors should maintain an emergency fund covering 6–12 months of expenses while exploring alternatives.
To safeguard your investment, consider splitting your fixed deposits to ensure they fall within the ₹5 lakh limit covered by deposit insurance. This includes both principal and interest and applies per depositor per bank under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme.
Meanwhile, several large commercial banks are also offering competitive rates—typically 7% or above—on long-term FDs, providing a balance between return and safety.
Current FD rates (Source: Bankbazaar.com)
| Axis Bank | 3.00% - 7.05% | 3.50% - 7.55% |
| Bandhan Bank | 3.00% - 7.75% | 3.75% - 8.25% |
| Bank of Baroda | 4.00% - 7.10% | 4.50% - 7.60% |
| Central Bank of India | 3.50% - 7.15% | 4.00% - 7.65% |
| HDFC Bank | 3.00% - 7.05% | 3.00% - 7.05% |
| ICICI Bank | 3.00% - 7.05% | 3.00% - 7.55% |
| IDBI Bank | 3.00% - 7.00% | 3.50% - 7.50% |
| IDFC FIRST Bank | 3.00% - 7.25% | 3.50% - 7.75% |
| IndusInd Bank | 3.50% - 7.75% | 4.00% - 8.25% |
| Karnataka Bank | 3.50% - 7.15% | 3.75% - 7.55% |
| Kotak Mahindra Bank | 2.75% - 7.15% | 3.25% - 7.65% |
| Bank of Maharashtra | 2.75% - 6.75% | 3.25% - 7.25% |
| Punjab National Bank | 3.50% - 7.10% | 4.00% - 7.60% |
| RBL Bank | 3.50% - 7.75% | 4.00% - 8.25% |
| South Indian Bank | 2.90% - 7.15% | 3.40% - 7.65% |
| State Bank of India | 3.50% - 6.90% | 4.00% - 7.40% |
| Tamilnad Mercantile Bank | 4.10% - 7.30% | 4.10% - 7.80% |
| UCO Bank | 2.90% - 7.05% | 3.15% - 7.55% |
| Union Bank of India | 3.50% - 7.15% | 3.75% - 7.40% |
| YES Bank | 3.25% - 7.50% | 3.75% - 8.25% |