FD investors: Book your fixed deposits at higher interest rates now before they come down further

Fixed deposit investors need to act quickly as the interest rate cut cycle has moved ahead with RBI cutting the repo rate by another 25 basis points in the second MPC meeting this year on April 09, 2025. After the latest rate cut, interest rates on fixed deposits are expected to come down further. This is the second rate cut by the central bank. The RBI MPC cut the repo rate by 25 basis points (100 basis points = 1%) in the last monetary policy meeting in February 2025. It is important to note that the RBI has changed the monetary policy stance from neutral to accommodative. The change in the stance signals that RBI may further reduce the repo rate this year. This, in turn, is likely to bring down the fixed deposit rates further.

While it may take some time for the interest rate on long-term FDs to come down, the impact of a rate cut will be quicker on short—to mid-term FDs. In order to streamline your strategy to manage your fixed deposit investment, you also need to factor in the possibility of any future rate cut.

Also read | RBI cuts repo rate by 25 bps: Borrowers can rejoice as their home loan EMI comes down further

How much reduction in repo rate likely this year?

Any rate cut in future will primarily depend on the direction of the retail inflation, growth and global economic developments.

"The accommodative stance is a positive signal to the industry. The RBI has cautiously outlined a strong growth path by maintaining the expected GDP growth rate at 6.5%. Inflation continues to moderate with oil prices lowering and food inflation sharply reducing, paving the way for further cuts. We expect the RBI to further cut rates by additional 50-75bps in the remaining calendar year," says Vineet Agrawal, Co - Founder at Jiraaf, SEBI registered bond platform.

Also read | SBI closes Amrit Kalash FD offering 7.60%: Know SBI special fixed deposit earning 7.75%

"RBI made it clear they will provide liquidity in the banking system to support growth Rate cuts in India is expected to be deeper to support growth as CPI inflation is below target of 4 percent for most of the year as per RBI projections. The terminal rate on repo can go towards 5.25 levels from 6 percent at present," says Murthy Nagarajan, Head-Fixed Income, Tata Asset Management.

Retail inflation has come down

The government has mandated the RBI to focus on inflation targeting. In recent months, the CPI inflation fell to a 7-month low of 3.6% in February 2025. According to the HSBC report, "We believe that inflation will average 3.5% over the next 6 months, well below the 4% target, led by lower food and core prices. Food inflation is likely to fall further from April when the new wheat crop hits the market. Core inflation, too, will likely remain soft, led by the recent appreciation of the rupee, imported disinflation from China, softer oil prices, and weaker domestic growth."

Also read | Kotak Mahindra Bank lowers FD interest rates by 15 bps: check details

As inflation comes down, the RBI will have more room to cut policy rates, which will further reduce the interest rates offered by banks on fixed deposits.

RBI to cut rate to support India's GDP
Further, there is a growing clamour for RBI to cut rates to support growth. The recent imposition of tariffs by the US President will hit growth. According to HSBC, "We calculate that India's GDP growth could take a direct 0.5% hit in FY26. The indirect and second-order negative impact could also be meaningful, emanating from slower export volumes around the world, weaker global FDI flows, and the re-routing of exports hurting manufacturing."

"The tariff shock has increased our conviction that the RBI will cut 25bps this week, with further easing ahead. This could also be accompanied by a change in stance to accommodative from neutral to give directional easing bias. The aim would be to facilitate faster monetary policy transmission, something that the RBI has evidently displayed by the swift liquidity injection," said Emkay Global Financial Services in its report.

What should FD investors do now?
If you still have surplus funds lying around, then it is high time to book your fixed deposits now. The banks have already started reducing the FD rates after RBI cut the repo rate in the last monetary policies.

Adhil Shetty, CEO of BankBazaar.com, says, "With large banks, fixed deposit rates are so far holding, with minor adjustments seen in some tenors. Depositors are advised to lock into higher rates available now. Senior citizens can benefit from the additional benefits of 50 bps on most tenors. HNW depositors can benefit from higher rates available on non-callable deposits."

The option of high interest rate FDs are shrinking with time. Some banks have already closed certain special FDs that were offering high interest rates for certain tenures to the customers.

Booking an FD now will help to get the benefit of higher interest rates which may not be available for much longer now.

Short-Term vs Long-Term FD Investment Strategy
If you're looking to invest in short-to-medium-term FDs, act quickly, as the window for booking high interest rates might be limited. For long-term investors, there may be a slightly longer timeframe to take advantage of current FD rates.

Higher Returns with Small Finance Banks - But Stay Cautious
Investors with a higher risk tolerance might consider placing their money in small finance banks. These institutions are currently offering some of the highest FD interest rates in India.

However, it's important to be cautious. To manage risk, avoid exceeding the insurance coverage limit of Rs 5 lakh per bank account, as provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC). For amounts exceeding Rs 5 lakh, consider spreading your investments across different banks or holding accounts in different names or capacities to stay within insured limits.