The Reserve Bank of India (RBI) has announced a reduction in the repo rate by 25 basis points, bringing it down to 6.25%. This decision by the central bank is likely to have an impact on fixed deposit (FD) investors, as it is anticipated that interest rates will decrease even further.
The repo rate essentially represents the interest rate at which the RBI provides funds to commercial banks, thus influencing borrowing costs throughout the economy. As banks are expected to adjust their rates downward following this repo rate cut, fixed deposit returns are anticipated to diminish in the upcoming months.
When the RBI decreases the repo rate, it essentially lowers the cost at which banks can borrow money. This reduction usually motivates banks to lower their lending rates on loans, ultimately making borrowing more affordable for consumers.
The decrease in deposit rates results in diminished returns for fixed deposit (FD) investors, particularly senior citizens who depend on interest income.
If banks decide to lower rates in the near future, new FD investors will experience lower earnings compared to those who took advantage of earlier, higher rates.
So what should you do?
Financial experts advise investors to act quickly and lock in current interest rates before any potential changes are made by financial institutions.
Mahendra Kumar Jajoo, CIO - Fixed Income, Mirae Asset Investment Managers (India), said, “Policy is a positive response to fiscal consolidation and may signal more rate cuts ahead. Bond yields are expected to ease further."
“If you’re planning to open a new FD, consider doing so soon to lock in the current higher interest rates before banks adjust them downward. Locking in an FD means securing a fixed interest rate for a specific period. Once invested, the money cannot be withdrawn before maturity without a penalty," said Adhil Shetty of BankBazaar.
Banks that have revised FD rates in January
Punjab National Bank (PNB):
PNB introduced new FD tenures of 303 days (7% interest) and 506 days (6.7%) starting from January 1. For general citizens, PNB's FD rates vary from 3.50% to 7.25%, with the highest interest rate of 7.25% offered on a 400-day tenure.
Shivalik Small Finance Bank (SFB): Shivalik SFB adjusted its FD rates on January 22. The bank provides interest rates ranging from 3.50% to 8.80% for general citizens and from 4% to 9.30% for senior citizens.
Karnataka Bank: Karnataka Bank also revised its FD rates the previous month. The bank's FDs offer interest rates between 3.50% and 7.50% for general citizens, with the highest rate of 7.50% applicable on a 375-day tenure.
Union Bank of India: Effective January 1, Union Bank of India updated its FD rates. The bank now provides interest rates ranging from 3.50% to 7.30%, with the highest rate of 7.30% being offered for a 456-day tenure.
Axis Bank: The FD rates at Axis Bank vary between 3% and 7.25%, with the top rate of 7.25% offered on durations between 7 days and 10 years.
Federal Bank: Federal Bank adjusted its FD rates as of January 10. The bank is presenting rates from 3% to 7.5% for the general public. The highest rate of 7.5% is attainable on a 444-day term.
Banks offering more 8% interest rate
Below are some Small Finance Banks offering FDs with interest rates above 8%:
AU Small Finance Bank Highest slab: 8.10% (18 months) 1-year: 7.25% 3-year: 7.50% 5-year: 7.25% Equitas Small Finance Bank Highest slab: 8.25% (888 days) 1-year: 8.10% 3-year: 8.00% 5-year: 7.25% ESAF Small Finance Bank Highest slab: 8.38% (888 days) 1-year: 6.00% 3-year: 6.75% 5-year: 6.25% Jana Small Finance Bank Highest slab: 8.25% (1 year to 3 years) 1-year: 8.25% 3-year: 8.25% 5-year: 8.20% NorthEast Small Finance Bank Highest slab: 9.00% (18 months 1 day to 36 months) 1-year: 7.00% 3-year: 9.00% 5-year: 8.00%
Small Finance Bank Interest Rates
Suryoday Small Finance Bank Highest slab: 8.60% (5 years) 1-year: 8.25% 3-year: 8.25% 5-year: 8.60% Ujjivan Small Finance Bank Highest slab: 8.25% (12 months) 1-year: 8.25% 3-year: 7.20% 5-year: 7.20% Unity Small Finance Bank Highest slab: 9.00% (1001 days) 1-year: 7.85% 3-year: 8.15% 5-year: 8.15% Utkarsh Small Finance Bank Highest slab: 8.50% (2 years to 3 years; 1500 days) 1-year: 8.00% 3-year: 8.50% 5-year: 7.75%
Private banks
Bandhan Bank offers competitive interest rates, with the highest slab at 8.05% for a 1-year fixed deposit. The rates for 3-year and 5-year fixed deposits are 7.25% and 5.85% respectively.
CSB Bank also provides attractive rates, with the highest slab at 8.00% for a 501-day fixed deposit. Rates for 1-year, 3-year, and 5-year deposits are 5.00%, 5.75%, and 5.75% respectively.
DCB Bank offers a maximum rate of 8.05% for fixed deposits ranging from 19 to 20 months and above 26 months to less than 61 months. The rates for 1-year, 3-year, and 5-year deposits are 7.10%, 8.05%, and 8.05% respectively.
RBL Bank provides competitive rates, with the highest slab at 8.00% for a 500-day fixed deposit. Rates for 1-year, 3-year, and 5-year deposits are 7.50%, 7.50%, and 7.10% respectively.
SBM Bank India offers attractive rates, with the highest slab at 8.25% for fixed deposits ranging from above 18 months to less than 2 years 3 days. Rates for 1-year, 3-year, and 5-year deposits are 7.05%, 7.30%, and 7.75% respectively.
YES Bank's highest slab is 8.00% for 18 months. Rates for 1-year, 3-year, and 5-year deposits 7.75%, 7.25%, and 7.25%, respectively.
Deutsche Bank's highest slab is 8.00% for 1 year to 3 years timeperiod. The interest rate for 1-year FD scheme is 7.00% and 3-year scheme is 8.00%