Can banks raise FD interest rates now as RBI increases repo rate by 25 bps?

Fixed deposit (FD) investors have been struggling with the lowest interest rate cycle for the last four years. However, they may now see the return of the rising-rate era as the Reserve Bank of India (RBI) increased the repo rate from 5.25% to 5.50% in its three-day Monetary Policy Committee (MPC) meeting, announced today (Wednesday, October 7).

It is the first time since February 2023 that the RBI has increased the repo rate, as it has been a downward journey since then, as banks have mostly reduced the rate. However, supply disruptions due to geopolitical tensions, high crude prices, and the recent US Fed rate hike suggested that the RBI might also go for a hike.

Moments after the RBI raised the repo rate by 25 bps on Wednesday, Bajaj Finance raised its FD rates by up to 40 bps.


Adhil Shetty, CEO, Bankbazaar, said, "Savers may see higher deposit rates over time, with new deposits repricing first. For investors, the stance and the pace of further steps are the signals to watch. A useful first step for households is to check how their own loan and deposits will be affected."

Also Read: End of low-interest rate cycle for many home loan borrowers as RBI increases repo rate by 25bps

Repo rate history

Effective Date	Repo Rate	% Change
07-10-2026	5.50%	5.50%
05-08-2026	5.25%	0.00%
05-06-2026	5.25%	0.00%
06-02-2026	5.25%	0.00%
05-Dec-25	5.25%	0.25%
06-Aug-25	5.50%	0.00%
06-Jun-25	5.50%	-0.50%
09-Apr-25	6.00%	-0.25%
07-Feb-25	6.25%	-0.25%
06-Dec-24	6.50%	0.00%
18-Sep-24	6.50%	0.00%
08-Jun-23	6.50%	0.00%
08-Feb-23	6.50%	0.25%
07-Dec-22	6.25%	0.35%

Source: RBI

Impact of retail inflation and RBI policy rate hike on FDs

Even though the retail inflation of 4.84% for August was below the RBI’s upper tolerance band of 6%, it has risen fast and is also estimated to increase further. Experts say that supply disruptions due to geopolitical tensions, high crude prices, and a rate hike by the Fed are key indicators that suggest that inflation may go up further and the RBI may increase the rate to control it. When the RBI goes for a rate hike, banks usually start increasing FD rates.

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Highest FD interest rates: Public vs private vs SFB (on home loans up to Rs 30 lakh)

Bank	Rate
Public-sector Banks
Bank of Baroda	6.60%
Bank of India	6.60%
Canara Bank	6.60%
Punjab National Bank	6.60%
State Bank of India	6.45%
Private Banks
Yes Bank	7%
Kotak Bank	6.65%
Axis Bank	6.50%
HDFC Bank	6.45%
ICICI Bank	6.30%
Small Finance Banks
Utkarsh Small Finance Bank	8.10%
Suryoday Small Finance Bank	7.80%
ESAF Small Finance Bank	7.75%
Jana Small Finance Bank	7.30%
AU Small Finance Bank	7.10%
Rates as advertised on respective banks' website on Oct 2, 2026; Deposits under Rs.1Cr for 1-2 years; Compiled by BankBazaar.com

High G-Sec yield and small savings rates

Fixed deposits face stiff competition from small savings schemes and Government Securities (G-Sec) rates. Both have been offering high interest rates for a long time, thereby compelling banks to increase FD rates to attract investors.

Small savings schemes are popular among a large section of Indians as these schemes allow low-amount investments. A high interest rate is another aspect that makes these schemes attractive for investors.

Also Read: Has government increased SSY, PPF, NSC, other small savings schemes' interest rates for October-December 2026 quarter?

If we look at small savings scheme rates, most of them offer more than 6.7% interest rate. Senior Citizen Savings Scheme and the Sukanya Samriddhi Account investors are getting an 8.2% interest rate each. The government hasn’t changed the interest rates of these schemes since December 2024.

Small savings scheme interest rates

Instrument	Rate of Interest w.e.f. 1.0.2026-31.12.2026	Compounding Frequency
Post Office Savings Account	4.00%	Annually
1 Year Time Deposit	6.9% (Annual Interest ₹708 for ₹10,000)	Quarterly
2 Year Time Deposit	7.0% (Annual Interest ₹719 for ₹10,000)	Quarterly
3 Year Time Deposit	7.1% (Annual Interest ₹729 for ₹10,000)	Quarterly
5 Year Time Deposit	7.5% (Annual Interest ₹771 for ₹10,000)	Quarterly
5 Year Recurring Deposit Scheme	6.70%	Quarterly
Senior Citizen Savings Scheme	8.2% (Quarterly Interest ₹205 for ₹10,000)	Quarterly and paid
Monthly Income Account	7.4% (Monthly Interest ₹62 for ₹10,000)	Monthly and paid
National Savings Certificate (VIII Issue)	7.7% (Maturity Value ₹14,490 for ₹10,000)	Annually
Public Provident Fund Scheme	7.10%	Annually
Kisan Vikas Patra	7.5% (will mature in 115 months)	Annually
Mahila Samman Savings Certificate	7.5% (Maturity Value ₹11,602 for ₹10,000)	Quarterly
Sukanya Samriddhi Account Scheme	8.20%	Annually

Source: India Post

In such a scenario, many investors may prefer small savings schemes over FDs and the only thing that can attract these investors towards bank fixed deposits is high interest rates.

If we look at the RBI’s term deposit and G-Sec data till October 5, 2026, the 1-year term deposit rate is 6-6.75%, the 3-year G-Sec yield is 6.79%, the 5-year is 6.95%, while the 10-year yield is 7.22%. These rates keep fluctuating slightly, but at present, they are higher than many public sector bank FD rates. As a result, banks may also be compelled to increase FD rates.

Credit-growth ratio

As per an RBI update on October 2, 2026, bank deposits were Rs 27.62 lakh crore against credit of Rs 22.33 lakh crore. Based on these two figures, the credit-deposit ratio stood at 80.83%. Sustained high credit growth creates pressure on banks to garner more FDs. Even though the ratio has fallen compared to July 31, when it stood at 81.96%, it is still above 80%, where the gap between deposits and credit is still very narrow. When the gap narrows, banks may be compelled to increase FD rates to attract more deposits.

When can banks increase FD interest rates?

Now, with the RBI also announcing a repo rate hike, when can banks start increasing their FD interest rates?

Raj Khosla, founder and managing director, MyMoneyMantra.com, says although there is no mandated timeframe to increase FD rates, as soon as the RBI brings any policy change, banks typically revise their FD rates within a few days to 4-6 weeks. The exact speed of revision depends on several banking operational factors, says Khosla.

Adhil Shetty, CEO, Bankbazaar, says some banks revise FD rates within a few days of an RBI policy change, while others may wait for several weeks depending on their funding requirements and liquidity position.

Which FD tenures will be see the interest rate hike first?

Anand Rathi, co-founder, MIRA Money, says banks may not increase rates on long-term deposits as they may think that the current inflationary forces are only temporary and so these banks may not want to lock in higher interest rates for a long time.

Shetty says banks usually revise deposit rates in their own time, and new deposits get the higher rate first.

What FD investors can do after RBI’s rate hike decision

For existing investors, there will be no change as they can continue with locked-in FD rates. But if they want to reinvest or want to make new FD investments, a rate hike may create an opportunity to lock in relatively higher rates.

Investors may also use the laddering strategy to manage their FD investments in terms of liquidity, returns, and interest rate fluctuations in the future.

Shetty says that existing fixed deposits continue to earn the rate at which they were booked.

"With the RBI also moving to calibrated tightening, savers can keep an eye on when their deposits mature, so that each one renews at the prevailing rate. Laddering FDs, by splitting money across deposits that mature at different times, also keeps part of the money accessible."

In FD laddering, FDs are divided into many parts, and different deposits mature regularly. Only a part of the FD corpus will get renewed at a lower rate, while the rest of the FDs will keep offering a higher interest rate.

With time, the interest rate cycle may turn again. As the FD matures, the proceeds can be used to reinvest at the prevailing rates or utilised as needed. Thus, FD depositors can expect to keep getting above-average returns from the laddering strategy.