Why You Should Book Your Fixed Deposit Now, Before FD Rates Are Cut

The Reserve Bank of India (RBI) has recently cut the repo rate by 50 basis points, bringing it down to 5.50%. This is the third rate cut in a row this year, signalling a shift toward lower interest rates across the economy. While this move is welcome news for borrowers – home loan EMIs are set to decrease – it has a flipside for savers. Fixed deposit (FD) interest rates are poised to drop, which means regular depositors and senior citizens could earn less on new deposits going forward. In this blog, we explore why it’s important to lock in an FD now before banks slash FD rates, and how you can make the most of the current scenario.

RBI’s Repo Rate Cut: What It Means for Depositors

When the RBI reduces the repo rate – the rate at which it lends to commercial banks – it lowers banks’ cost of funds. In response, banks typically reduce their lending rates (making loans cheaper) and also cut deposit interest rates to maintain their profit margins. The latest 50 bps repo rate cut to 5.5% is significant. It means banks may soon likely announce lower interest rates on new FDs and savings accounts.

For depositors, especially individuals and retirees, this is a pivotal moment. Depositors face an interest rate downturn, meaning the attractive FD rates offered in recent months could diminish quickly. Banks have already been trimming deposit rates after earlier RBI cuts this year.

Falling Interest Rates and Your Fixed Deposits

FD interest rates are already on a downward trend. Banks often move quickly to adjust deposit rates once the RBI announces a cut. In the past few months, as RBI eased policy rates, barring a few banks like Ujjivan SFB, which underwent a marginal rate revision, most banks have aggressively lowered FD rates for various tenures. 

At the same time, a few institutions still offer relatively high rates for now. For example, Ujjivan Small Finance Bank (Ujjivan SFB) offers high-interest FDs ideal to meet your financial goals and aspirations. However, such high rates may not last for long. 

The takeaway: Interest rates on deposits are headed south. If you wait for even a few weeks or months, the FD rates available then could be substantially lower than what you can get today. Therefore, acting now can secure you a better deal.

What Happens if You Lock Your FD Now?

The good news is that fixed deposits allow you to lock in a rate for the entire tenure of your deposit. If you open an FD today, you will continue to earn the agreed interest rate until it matures, even if the bank cuts rates for new FDs tomorrow. This is a key benefit of FDs – the rate is fixed upfront and doesn’t fluctuate with market conditions.

So, booking an FD now essentially locks in the current higher interest rate for you. For instance, suppose your bank currently offers up to 8.05% annual interest on 18-month FD. If you invest now, you’ll get 8.05% interest rate – even if the bank reduces the rate tomorrow – no questions asked.
 

Locking the rate now means earning more interest on your savings than what late-comers will get. Whether you’re saving for a goal or just parking surplus funds safely, a higher fixed return will accelerate your wealth accumulation more than a lower one.
 

If you already have existing FDs, they are safe at their current rates until maturity. Those do not get reduced mid-way. The concern is for new deposits or renewals going forward – those would fetch the new lower rates. That’s why, if you have an FD maturing soon or idle money to invest, doing it before banks announce rate cuts is wise.

Why Booking FDs Now Makes Sense (Especially for Senior Citizens)

For senior citizens, the falling interest rate scenario is even more crucial. Many retirees depend heavily on interest from FDs for their regular income and financial security. Banks typically offer an additional interest rate (for example, +0.50%) to senior citizen depositors as a benefit. But that extra is over the base rate – which means if base rates fall, the absolute interest they earn falls too (even if the spread remains).

• Secure higher income now: By booking FDs before rates drop, seniors can secure the current elevated rates for the long term. For example, with Ujjivan, senior citizens can earn up to 8.55%* p.a. (*T&C apply).
• Maintain peace of mind: Another aspect is psychological – knowing that you have locked in a decent rate can give seniors peace of mind in a low-rate environment. It reduces uncertainty about income streams. With inflation relatively low and falling rates, an FD booked now at higher interest can act as a buffer, helping senior citizens sustain their lifestyle without worrying about each RBI policy change.
• Regular depositors (non-seniors) are also affected, of course. While they might have a longer investment horizon or other avenues, any conservative saver who values guaranteed returns should act promptly too. If you are a depositor who dislikes risk and prefers assured returns, now is an opportunity to grab the best FD yields available before they vanish. This is especially true if you have short-term surplus funds or are building an emergency fund – you might want to lock part of it in a high-rate FD now (keeping some in liquid form as needed).

Consider Medium to Long Tenures for Your FDs

A key decision when booking an FD is the tenure (duration) you choose. In a falling interest rate cycle, opting for a longer tenure can be beneficial for maximizing returns, provided you won’t need that money immediately. Here’s why:

• Interest rate cycle: We are moving from a period of high (or rising) interest rates to a period of declining rates. It may take several quarters (or years) for rates to bottom out and then eventually rise again. If you lock into a long-term FD (say 3 to 5 years or more) at today’s rates, you ensure you’ll earn that rate for the entire duration, which likely covers most of the low-rate period to come. By the time your FD matures, either rates might have started recovering or you’d have enjoyed above-market returns throughout the low phase.
• Short-term FDs vs long-term FDs: Shorter-term FDs (like 6 months or 1 year) will reprice quickly. For example, a 1-year FD you book now will mature next year, and at that point, prevailing rates could be much lower when you go to renew. In contrast, a 5-year FD locks in the current rate for five years straight, so you avoid having to reinvest at a low point next year or the year after.
• Choosing tenure wisely: If you have funds that you won’t need for a while (college fund for kids, a portion of retirement corpus, etc.), consider investing them in a longer-term FD now.

Note: Be mindful of your liquidity needs. Do not lock all your money in long FDs if you might require some of it in the near future. For sums you might need in 6–12 months, a shorter FD or a different instrument is more appropriate. The goal is to maximize interest on the funds you are confident you can keep aside for the long term.

Laddering Your FDs for Flexibility and Better Returns

One smart strategy to consider now is FD laddering – this is especially useful for senior citizens or anyone who wants both good returns and some liquidity.

What is laddering? Laddering means instead of putting all your money into one fixed deposit, you divide it into multiple FDs of staggered maturities. For example, if you have ₹5 lakhs to invest, you could split it into five FDs of ₹1 lakh each with tenures of 1, 2, 3, 4, and 5 years respectively (that’s one example of a ladder). Each year one FD will mature, and you can reinvest that amount accordingly.