Be quick to lock into high-yield deposits

With RBI cutting repo rates, now is the time to lock into high-yield fixed deposits. Experts advise a laddering strategy, investing in SFBs and AAA-rated NBFCs, and spreading FDs across banks to maximize returns and safety before deposit rates fall further.

Written by Saikat Neogi

June 6, 2025 23:00 IST

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Small finance banks are offering interest rates above 8% on FDs compared to large commercial banks. (Freepik)

With Reserve Bank of India reducing the repo rate by 50 basis points, individuals should lock into high-yield deposits for longer tenures. They should even look at deposits of small finance banks (SFB) that are offering up to 9% and adopt a laddering strategy.

To balance safety with opportunity, a laddering strategy is best now. Individuals should spread their deposits across one-year, two-year, and five-year tenures. That way, part of the portfolio will earn higher rates, while the rest will give reinvestment flexibility later.

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Adhil Shetty, CEO, BankBazaar.com, says senior citizens should act quickly as banks will start cutting fixed deposit (FD) rates soon, especially on short- to medium-term buckets. “If you rely on deposits for income, this is the moment to lock into high-premium senior citizen fixed deposits,” he says and adds that with inflation trending below 4%, real returns will still remain positive.

Spread your deposits

Individuals must spread their FDs across multiple scheduled banks to get maximum possible capital protection available through the insurance cover offered by Deposit Insurance and Credit Guarantee Corporation (DICGC). The cumulative deposits maintained with each bank should not exceed Rs 5 lakh.

Santosh Agarwal, CEO, Paisabazaar, says opening FDs with multiple scheduled banks can help depositors ladder their deposits across multiple maturities and thereby, reduce their FD reinvestment risk. “The tenures of the highest FD slab rates vary across banks due to the variations in their Asset Liability Requirements,” she says.

Go long-term

As we are in the middle of a low-interest cycle, rates are likely to fall further in the coming months. While banks may not reduce deposit rates overnight, it will be a matter of only days before FD rates fall. “If FDs are a significant part of your long-term debt investment, this is the right time to lock your FDs into longer tenures, before banks start repricing their deposit rates downward,” says Shetty.

Look at deposits of small finance banks

Small finance banks are offering interest rates above 8% on FDs compared to large commercial banks. These banks are regulated by the RBI and deposits held there come under the Rs 5 lakh DICGC insurance limit. However, it is better to avoid placing large sums in one such bank and keep the total exposure within the insured limit.

Now the cut in repo rate and the easing on cash reserve ratio will mean that the cost of funds for the banks are also set to fall considerably. “So the expectation is that these institutions will continue to offer as much as 75 to 100 basis points over other bank FD rates, but the peak interest rates will come down in line with other bank FDs,” says Shetty.