RBI repo rate cut by 50 bps: What fixed deposit investors should do now

The Reserve Bank of India has reduced the repo rate by 50 basis points to 5.5% on June 6, 2025. This marks the third consecutive cut this year. This move aims to stimulate economic growth amid easing inflation, thus bringing challenges for fixed deposit (FD) investors as banks are expected to lower FD interest rates in a response to this move.

Impact on fixed deposit returns

With a cumulative deduction of 100 basis points in the repo rate in 2025, banks have been steadily decreasing the fixed deposit interest rates. According to SBI research fixed deposit rates have declined by 30 to 70 basis points since February 2025. Short and medium term fixed deposits are likely to witness the most serious rate cuts.

For example a 1 year fixed deposit rate dropping from 7% to 6.5% would result in ₹5,000 less annual interest on a ₹10 lakh deposit.

What should fixed deposit investors do?

Deepak Kumar Jain, Founder and CEO of InvestManager.in, stated that “As interest rates soften, FD returns are likely to decline, possibly settling around or below 7% per annum. For many conservative investors who rely on FDs for safe and stable income, this trend poses a significant challenge”.

“In this low-rate environment, FD investors must revisit their investment strategy. While conservative investors may still choose to allocate a portion of their portfolio to FDs for capital preservation, diversification is now more important than ever," he added further.

Trivesh D, COO, Tradejini, says “If you have already locked into a high-rate FD, you are in a good spot. But if you are planning fresh deposits, this might be the moment to act. We feel it makes sense to consider medium to long-term FDs now, before rates slide further. That said, it doesn’t have to be an FD-only strategy. Debt mutual funds, especially short-duration and target maturity ones are starting to look a lot more attractive. They come with tax efficiency and flexibility that FDs often lack. And for those looking for safety with steady returns, RBI’s floating rate savings bonds at 8.05% are definitely worth considering.”

Strategies for FD investors amid falling rates

In a rapidly declining interest rate environment, fixed deposit investors can consider the following methods:

• Laddering FDs: Stagger your investments across various maturities to manage reinvestment risks and maintain proper liquidity.
• Exploring small savings schemes: Government sponsored schemes such as Senior Citizen Scheme or National Savings Certificates often offer higher returns and are less sensitive to repo rate changes.
• Considering short-term corporate bonds: High ranked 2-3 year corporate bonds may also assist in providing better yields compared to traditional FDs.
• Evaluating hybrid mutual funds: These funds invest in a mix of debt and equity. This has the potential to offer higher returns with moderate risk.
• Monitoring inflation trends: With CPI inflation projected at 3.7% for FY26, real returns from FDs may be minimal, emphasizing the need for diversified investment strategies. Investors can also look to move towards equity mutual funds in such a scenario.

Hence, the RBI’s recent rate cuts underline the importance for fixed deposit investors to reassess their investment goals and strategies. Given traditional fixed deposits provide safety, their diminishing returns in a low interest rate environment necessitate exploring alternative investment avenues.

Diversification of investments and staying informed about economic indicators can provide investors the path to navigate this challenging landscape.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors are advised to consult a certified financial advisor before making any investment decisions.