RBI repo rate hike: Your FD interest rates are set to go up; Here’s how

Following the 50 bps rise in repo rates by the Reserve Bank of India (RBI), banks are expected to increase the interest rates for fixed deposits in tune with the rise in the key benchmark rate. This is the fourth time the central bank has increased repo rates since May from 4 to 5.90 per cent. 

“Today’s hike was the fourth straight hike in the repo rate since May 2022, and these consecutive rate hikes have given further momentum to rising FD interest rates. The era of low FD rates is now certainly behind us, and FD investors can expect better days ahead. The rate hike momentum is expected to continue for some more time. While the probability of hitting double digit rate in near future are low, it is clear that FD interest rates are slated to hit 8% and are inching towards the 9% mark. While the rate transmission is slower in FD rates, reduced liquidity may spur the increase in FD rates. Nevertheless, there is still more upward movement expected in FDs and laddering FDs would continue to be a good move for the next few months,” says, Adhil Shetty, CEO, BankBazaar.com

On the back of a series of hikes in repo rate, many banks have recently increased their FD rates. For example, Punjab National Bank increased the FD rate to 6.1 per cent up from 5.1 per cent over the period of last year on deposits of 1 year to 3 years recently. The largest public sector bank, State Bank of India (SBI) also hiked fixed deposit (FD) interest rates to 5.5 per cent from 5.3 per cent, a jump of 20 basis points. Similarly, in the private sector, Bandhan Bank has increased FD rates to 7 per cent up by 1.5 per cent on deposits of 1 year to 3 years. A basis point is one-hundredth of a percentage point.

The rise in interest rates has made FDs attractive given the rates remained low for a long time. The question, however, remains whether this recent increase in FD rates will be enough to absorb the impact of high inflation, which was as high as 7 per cent in August 2022, on the back of supply constraints and high crude oil price. 

The government on Thursday also raised rates on some small savings schemes. While the interest rate for popular PPF and NSC were retained, rates for five other schemes where income accruing is taxable have been hiked by up to 30 basis points. The revision came after nine quarters of status quo. The interest rate on small savings schemes was last revised during the first quarter of 2020-21 when rates were slashed.

Also read: RBI's repo rate hike: You might pay Rs 59 lakh more as interest on your Rs 50 lakh home loan; Here’s how

Also read: RBI MPC meet: Expect a 8-9% rise in home loan EMIs after today’s repo rate hike