RBI Repo Rate Reforms: Does it Affect Your Fixed Deposit Interest Rate?

On 6 June 2025, the Reserve Bank of India (RBI) cut the repo rate by 50 basis points bringing it down to 5.50%. This marks the third repo rate cut this year, under the supervision of the new RBI Governor Sanjay Malhotra. The rate comes at a time as the Indian economy grapples with a host of challenges, including a 26% tariff imposed by the US Government on Indian exports. 

Understanding the Repo Rate

The repo rate is the interest rate at which the RBI lends money to commercial banks. A reduction in this rate lowers the cost of borrowing for banks, which can lead to decreased interest rates on loans and deposits for consumers.

What Does the Repo Rate Cut Mean for your Fixed Deposit?

First things first. If you have booked your Fixed Deposit (FD) before the repo rate cut, your interest rate would remain unchanged, even if the bank decides to reduce the rate after rate cut. FD interest rates remain locked throughout the deposit tenure. So, the interest rate promised to you at the time of opening the account would remain as is – no change whatsoever.

That said, the recent reduction in the repo rate may have a significant impact on both borrowers and savers. Those with loans, such as home, auto, and personal loans, are likely to benefit from reduced EMIs. On the other hand, savers, especially those who rely on fixed deposits (FDs), may see a decline in their returns as banks lower interest rates on deposits. However, the reduction in FD rates post repo rate cut is at the sole discretion of the bank. Check with your bank to know the latest FD rates.

Here’s a summary:

1. Reduction in FD Interest Rates: Banks are likely to lower FD interest rates to align with the decreased cost of borrowing. This means new FDs may offer lower returns compared to previous rates. But this depends entirely on the bank's policies and decision. Check with your bank to know the latest interest rates.
2. Impact on Existing FDs: If you have an existing FD with a fixed interest rate, your returns will remain unaffected until maturity. However, upon renewal, the new interest rates will apply, which may be lower.
3. Senior Citizens: Senior citizens, who often rely on FDs for regular income, may experience a decrease in interest income due to the anticipated reduction in FD rates. 

Strategies to Mitigate the Impact

To navigate the changing interest rate environment, consider the following strategies:

1. Lock in Current Rates: If you're planning to invest in an FD, doing so promptly can help you secure the existing higher rates before banks implement reductions.
2. Diversify Investments: Explore alternative investment options such as debt mutual funds, bonds, or other fixed-income instruments that may offer better returns. However, assess the associated risks and consult with a financial advisor before making decisions.
3. Laddering Strategy: Invest in multiple FDs with varying maturities. This approach provides liquidity at different intervals and reduces the risk of reinvesting all funds at potentially lower interest rates in the future.