RBI cuts repo rate by 25 bps! Your bank will slash fixed deposit rates now? Check what top banks are offering on FDs

The Reserve Bank has cut the repo rate to 6.25% — the interest rate at which the central bank lends money to commercial banks — for the first time in nearly five years. The 25 basis points (bps) reduction aims to improve economic liquidity. While the rate cut may prompt banks to lower loan interest rates, it could also reduce fixed deposit rates, affecting customers, including senior citizens.

The repo rate increase or decrease has a direct impact on borrowing costs for banks. A higher repo rate raises FD interest rates, attracting deposits, while a lower rate reduces FD returns by making borrowing cheaper.

The RBI had last cut the repo rate by 40 basis points to 4% in May 2020 to help the economy navigate the pandemic period crisis. Since then, the repo rate steadily increased until December 2022. Since then there were seven consecutive hikes bringing it to 6.5% until Feb. 2023.

What will be RBI repo rate cut impact on FDs?

The RBI’s 25 bps cut marks a shift from the high-interest rate regime that prevailed for the last four years. The high report rate saw bank loan rates soaring but that also made fixed deposits (FDs) more attractive. With borrowing costs rising, banks were forced to offer higher FD rates to attract deposits and maintain liquidity.

However, with the latest rate cut, banks may start lowering FD interest rates in response to reduced lending rates. This will now impact investors — especially retirees and conservative savers — who have enjoyed strong returns on their fixed deposits. While the impact may not be immediate, a sustained easing cycle could gradually bring FD rates down.

There were predictions that the RBI would cut rate cut in the February monetary policy, but still several banks recently hiked FD rates on certain plans. In the past month, banks such as Union Bank of India, Punjab National Bank (PNB), Axis Bank, Shivalik Small Finance Bank, Karnataka Bank, and Federal Bank revised their rates on FDs.

Also read: Fixed deposits offering more than 8% interest rates on 1-2 year FDs – Compare the latest rates

Banks that have revised FD rates

In January, following banks have either revised their fixed deposit interest rates or introduced some new plans:

Punjab National Bank

PNB launched new FD tenures of 303 days (7% interest) and 506 days (6.7%), effective from January 1. For general citizens, FD rates range from 3.50% to 7.25%. The highest interest rate of 7.25% is offered on a 400-day tenure.

Shivalik Small Finance Bank (SFB)

Shivalik SFB revised its FD rates on January 22. The bank offers rates between 3.50% and 8.80% for general citizens, and 4% to 9.30% for senior citizens.

Karnataka Bank

Karnataka Bank also revised its FD rates last month. Its FDs give interest in the range of 3.50% to 7.50% for general citizens. The highest rate of 7.50% is on a 375-day tenure.

Union Bank of India

Effective January 1, the bank revised its FD rates. It offers interest between 3.50% and 7.30%, with the highest rate of 7.30% being given on a 456-day tenure.

Axis Bank

Axis Bank’s FD rates range from 3% to 7.25%, with the highest rate of 7.25% available on tenures ranging from 7 days to 10 years.

Federal Bank

Federal Bank revised its FD rates on January 10. The bank is offering rates in the range of 3% to 7.5% for general citizens. The highest rate of 7.5% is available on a 444-day tenure.