RBI Repo Rate Pause: Time for FD investors to make the best of prevailing high interest rates as FD rates to continue to fall

The era of high interest rates on FDs is almost about to get over. Though the RBI in its monetary policy meeting held today has decided to keep the repo rate unchanged however, previous rate reductions are likely to have an impact in coming days.

It is worth mentioning that the RBI reduced the repo rates by 100 bps in successive MPC meetings till June this year from 6.5% to 5.5%. However, the transmission of this reduction has not been complete as far as FD interest rates are concerned. Therefore, the interest rate reduction on FD rates is likely to continue for some time even though the central bank has decided to keep the repo rate unchanged.

Also read | Will the dream run for home loan borrowers continue despite RBI pausing repo rate?

Will there be further rate cuts in coming months?

Retail inflation is one of the primary focus areas of the RBI upon which the central bank decides whether to change the policy rates or not. The retail inflation in India has been falling continuously for last 8 months has come down to 2.1% in June 2025 which is the lowest level seen in last 12 months. Lower the retail inflation is, RBI is more comfortable in reducing the policy rates. However, RBI is likely not to go by current inflation level which were already factored in previous rate cuts. Rather, the central bank is likely to base its future decision on durable directions of the inflation in future.

10 year government bond yield which rose to 6.843% on January 13 this year fell to 6.16% on May 29. However, since then it has been hovering around 6.3%. This indicates that bond markets are not expecting any significant cuts policy rates in the near term. However, transmission of earlier rate cut is likely to continue.

How much FD rate cuts should investors expect in future?

The RBI has cut the repo rate three times till now. According to the SBI research report, "Transmission to deposit rates is expected to be strong in the coming quarters. 100 bps repo rate cuts are expected in FY26."

What should be FD investors' strategy as interest rates fall?

There are very limited options available to FD investors when the interest rates are falling in the economy. Here are the steps that they should take to minimise the loss and make the most of the current situation.

Lock-in your investment at prevailing high rates

The interest rates on fixed deposits are expected to fall in the upcoming months, however, it may take some time before it actually happens. There are many banks which are still offering FDs at attractive rates. Therefore, it is essential for FD investors to book FDs at current higher rates as soon as possible.

Certain banks are still offering interest rates of 8% or higher for longer-term fixed deposits. However, as most of the highest interest rates currently available on FDs are being offered by Small Finance Banks so you should check the safety of your principal amount. If you book your FDs with any bank which is considered risky it will be better to book your FD in such a way that it is covered under Rs 5 lakh deposit insurance cover. Many major banks are currently offering interest rates of 7% or higher for longer-term fixed deposits.

You can find good rates on medium to long term FDs

As interest rate cycle has reversed from rising interest rates to falling interest rates, it may take a while for the interest rate cycle to reach its bottom and make a turn around. While short term FDs will see quick reduction in interest rate, it may take a while for interest rate on medium to long term FDs to fall. Therefore, if you do not have any short-term need, a strategy of locking FDs for medium to long term can be beneficial.

Count on laddering to save from the lowest yield

Senior citizens can still count on the laddering strategy to manage their fixed deposits (FDs) in terms of liquidity, returns, and interest rate fluctuations in the future. "With RBI holding the repo rate steady at 5.50% and inflation largely under control, waiting for a major uptick in FD rates may not be practical. A better approach is a laddering strategy - spreading deposits across different tenures - to capture current yields while staying flexible for future opportunities. If you’re uncertain, consider allocating a portion to shorter-tenure FDs of 1–2 years. In volatile cycles, consistency and smart structuring often beat the pursuit of perfect timing," says Sarbvir Singh, Joint Group CEO, PB Fintech.

FD laddering strategy allows senior citizens to break the investible surplus into different tenures. As the FDs are divided into many parts and different FDs mature regularly, it saves the depositors from the eventuality of renewal risk when interest rates are low. Only a part of the FD corpus will get renewed at lower rate while rest of the FDs will still keep enjoying 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, the depositors can expect to keep getting above-average returns from the laddering strategy.

Should you go for corporate FD?

As an FD investor, if you are wiling to take a risk, then corporate FDs can be your bet. These FDs offer higher interest rate but comes with a relatively higher risk.