FD investors breathe easy as RBI pauses rates; how to lock in your investments for better returns

Fixed deposit rates are to remain unchanged following the Reserve Bank of India's (RBI) decision to keep the repo rate steady at 5.25% with its first Monetary Policy Committee (MPC) meeting of the year, which concluded today (Friday, February 6, 2026).

This is a shift from the last MPC in December 2025 when the RBI lowered the repo rate by 25 bps, bringing the total cuts for the year to 125 bps.

With no cut in the repo rate this time, it is highly unlikely that banks and small finance banks (SFBs) will significantly lower their FD interest rates.


That said, the transmission of the previous repo rate cut is not yet complete and some banks and SFBs may still cut FD rates.

Adhil Shetty, CEO, BankBazaar, says a pause in the repo rate sustains the gradual moderation in deposit returns already underway following earlier policy actions.

"High-yield fixed deposits are becoming increasingly selective, with most mainstream offerings consolidating within a narrower band. While current liquidity conditions continue to support deposit mobilisation, the likelihood of materially higher FD rates emerging remains limited in a steady-rate environment," says Shetty.

Explaining what FD investors should do in current situations, Shetty says investors assessing locking strategies may benefit from spreading allocations across multi-year tenures to preserve returns before further repricing takes place.

"Senior citizen premiums remain an advantage, though these too are expected to evolve as banks adjust to a stable but lower reference-rate regime," says Shetty.

Repo rate: A brief history

Date	Rate (%)	Change (%)
07-Feb-25	6.25%	-0.25%
09-Apr-25	6.00%	-0.25%
06-Jun-25	5.50%	-0.50%
06-Aug-25	5.50%	0.00%
05-Dec-25	5.25%	0.25%

What stopped the RBI from reducing the repo rate this time?

The RBI didn't cut the repo rate this time because inflation is under control, small savings schemes are offering higher rates and the 10-year government security (G-Sec) bond yield is hovering around 6.651%. In such a scenario, cutting the rate might not have been an easy task for the RBI .

Will there be a repo rate cut in future?

Although the RBI decided to pause its rate activity this time, we can’t rule out the possibility of a rate cut in the future should inflation, competitive interest rates and 10-year bond yield change. FD rates are already low since the RBI cut the repo rate comprehensively last year. So, if the central bank were to lower the repo rate in the near term, banks and small finance banks (SFBs) will find it very difficult to cut FD rates.

Which banks are offering the highest rates in 1, 3 and 5-year FDs?

Here’s a list of banks offering the highest interest rates in their 1, 3 and 5-year FDs (as per Paisabazaar.com)

Public sector banks with highest 1, 3 and 5-year FD rates

Rank	1-year FD (Bank & %)	3-year FD (Bank & %)	5-year FD (Bank & %)
1	Indian Overseas Bank – 6.50%	Punjab National Bank – 6.30%	Bank of Baroda – 6.30%
2	Bank of India – 6.25%	State Bank of India – 6.30%	Canara Bank – 6.25%
3	Canara Bank – 6.25%	Bank of Baroda – 6.25%	Indian Overseas Bank – 6.10%
4	State Bank of India – 6.25%	Bank of India – 6.25%	Punjab National Bank – 6.10%
5	Union Bank of India – 6.25%	Indian Overseas Bank – 6.10%	State Bank of India – 6.05%

Private sector banks with highest 1, 3 and 5-year FD rates

Rank	1-year FD (Bank & %)	3-year FD (Bank & %)	5-year FD (Bank & %)
1	Bandhan Bank – 7.00%	RBL Bank – 7.20%	DCB Bank – 7.15%
2	RBL Bank – 7.00%	SBM Bank India – 7.10%	IDFC FIRST Bank – 7.00%
3	SBM Bank India – 7.00%	Bandhan Bank – 7.00%	SBM Bank India – 7.00%
4	DCB Bank – 6.90%	DCB Bank – 7.00%	YES Bank – 6.75%
5	City Union Bank – 6.80%	IDFC FIRST Bank – 7.00%	RBL Bank – 6.70%

SFBs with highest 1, 3 and 5-year FD rates

Rank	1-year FD (Bank & %)	3-year FD (Bank & %)	5-year FD (Bank & %)
1	Suryoday Small Finance Bank – 7.25%	Jana Small Finance Bank – 7.50%	Suryoday Small Finance Bank – 7.90%
2	Ujjivan Small Finance Bank – 7.25%	slice Small Finance Bank – 7.50%	Jana Small Finance Bank – 7.77%
3	Jana Small Finance Bank – 7.00%	Utkarsh Small Finance Bank – 7.50%	Ujjivan Small Finance Bank – 7.20%
4	Equitas Small Finance Bank – 6.90%	Suryoday Small Finance Bank – 7.25%	Equitas Small Finance Bank – 7.00%
5	AU Small Finance Bank – 6.35%	Ujjivan Small Finance Bank – 7.20%	slice / Utkarsh Small Finance Bank – 7.00%

In the tables, we can see that public sector banks are offering a highest FD rate of 7%, while private sector banks are offering a highest FD rate of 7.20%. SFBs are offering the highest rate of 7.90%.

However, before booking your FD with any risky bank, you must find out if it is under the Rs 5 lakh deposit insurance cover.

Which investment schemes offer over 7% interest rates?

The RBI's floating rate bond offers an interest of 8.05%. Schemes such as Senior Citizen Savings Scheme (SCSS), Sukanya Samriddhi Account (SSA), Monthly Income Scheme (MIS), National Savings Certificates (NSC), Public Provident Fund (PPF), Kisan Vikas Patra (KVP) and 5-year Term Deposit (TD) offer more than 7% interest rates.

Small savings schemes offering highest returns

Scheme	Interest rate (%)	Tenure / maturity
Senior Citizen Savings Scheme (SCSS)	8.2	5 years
Sukanya Samriddhi Account (SSA)	8.2	21 years (maximum)
National Savings Certificate (NSC)	7.7	5 years
Kisan Vikas Patra (KVP)	7.5	115 months
Monthly Income Scheme (MIS)	7.4	5 years
Post Office Time Deposit (5-year)	7.5	5 years
Public Provident Fund (PPF)	7.1	15 years

Frequently asked questions about FD interest rate and repo rate

Which factors influence FD interest rate?

Vijay Kuppa, CEO of InCred Money, told ET Wealth Online that FD rates depend on the demand and supply of money in the banking system. Key drivers include RBI policy rates (repo), liquidity, credit demand, inflation expectations, and competition among banks/NBFCs. Rates rise when money is scarce and fall when liquidity is high, says Kuppa.

Prabhakar Kulkarni, Head BFSI Advisory, NPV & Associates, Chartered Accountants, told ET Wealth Online key factors include inflation, GDP growth, loan demand, global economic trends, bank liquidity, fiscal deficits, credit scores, and loan tenure.

“Higher inflation and strong loan demand usually push rates up, while lower inflation leads to rate cuts. Ultimately, FD rates depend on funds available with banks and RBI policy guidance,” says Kulkarni.

What is the role of RBI repo rate in determining FD interest rates?

Kuppa says the repo rate acts as the base signal for interest rates. When it rises, borrowing becomes costlier and banks increase loan and FD rates, when it falls, borrowing becomes cheaper and banks may reduce both loan and deposit rates, explains Kuppa.

What is the role of inflation in determining FD interest rates?

Kulkarni says inflation and FD interest rates are interlinked. “When inflation rises beyond RBI’s target, policy rates are increased to control demand and prices. Lower interest rates boost borrowing and demand, which can increase inflation, while higher rates curb borrowing and reduce inflationary pressures,” says Kulkarni.

According to Kuppa, high inflation pushes savers to demand higher returns and forces banks to offer better FD rates, while the RBI keeps policy rates elevated.

Kuppa further explains when inflation falls, pressure on FD rates reduces and the RBI can cut rates.

Do banks immediately cut FD rates when the RBI cuts the repo rate?

Kulkarni says FD rates are influenced not only by the repo rate but also by bank liquidity, competition, performance, asset-liability position and statutory requirements. Hence, banks may not reduce FD rates immediately even if the repo rate falls, Kulkarni explains.

Kuppa describes banks may still face tight liquidity, strong credit demand, intense deposit competition, or may wait for sustained rate trends. Hence, FD rates can remain high even after repo cuts, opines Kuppa.

What should an investor do if FD rates are cut or increased?

Kuppa discloses his approaching regarding what an FD investor ought to do if a bank cuts or raises fixed deposit rates.

When FD rates fall

• Conservative investors should ladder FDs and prioritise capital protection
• Moderate investors may add equities and short-duration bonds
• Aggressive investors can increase equity exposure and continue SIPs.

If FD rates fall, Kulkarni advises FD investors to avoid panic withdrawals and risky investments in unregulated schemes. He asks them to invest only in credible banks/NBFCs under RBI oversight.

When FD rates rise

• Kuppa advises conservative investors can lock in FDs and stagger maturities
• Moderates may allocate more to fixed income
• Aggressive investors can rebalance portfolios while maintaining long-term equity exposure.

When FD rates rise, Kulkarni advises depositors to verify bank credibility and performance before investing in an FD.