Savers, Brace for Impact: Deposit Rates Set to Fall as RBI Cuts Repo Rate

The Reserve Bank of India's decision to reduce the repo rate by 25 basis points has created renewed worries for depositors and savers, even as borrowers greet the decision with smiles. Over the last two months, the repo rate has been trimmed by a total of 50 basis points, a cut that is a signal change in the RBI's stance even as inflation remains muted and growth remains fragile.  There is no question that this is a benign development for those who have taken loans, both in terms of getting new funds and for those who are repaying old loans. But what this means for Fixed Deposit (FD) holders is another matter.

In response, banks have started to modify their deposit schemes. Kotak Mahindra Bank was the first to take such action, paring down fixed deposit rates by as much as 15 basis points across some tenures. As of April 9, 2025, the bank offers rates across various tenures that range from 2.75% to 7.30% for the general public and 3.25% to 7.80% for senior citizens.

Senior Citizens and Conservative Investors Take a Hit

People reliant on set incomes, especially older adults, are likely to take the hardest hits from this shift. Such investors have usually counted on the safe, dependable returns of term deposits.

As more banks align with the RBI's direction, rates will likely keep sliding. HDFC Bank has already lowered its FD returns, discontinuing its high-interest schemes that previously offered up to 7.40% for longer terms. In recent days, Bandhan Bank, Yes Bank, and Equitas Small Finance Bank have also trimmed their FD rates.

Shrinking Margins, Changing Liquidity Dynamics

The relatively stable nature of savings deposit rates, accounting for around 30% of deposit share, has dampened the overall transmission of the policy rate cuts to the depositors, according to the State Bank of India. But with CASA deposits declining and banks being under pressure to manage liquidity, even these rates may not hold steady for long.

SBI observes that term deposit rates are impacted in a much stronger way than lending rates. This starts to compress the net interest margins for banks, a kind of no-man's-land indicator that could signal at least two broader trends. One is what's happening on the funding side. Since term deposits are generally less liquid than demand deposits and there is still a healthy growth in demand deposits, banks could be moving towards a structure where they pay less for the funds they are using to make loans.

As fixed deposit rates are expected to fall even more in the coming months, analysts suggest that investors should take the time to secure high-yield rates. Vijay Kuppa, CEO of InCred Money, said that locking in current FD offers is a good strategy for investors, much more so, he said, if inflation remains low and future interest rate cuts are seemingly on the horizon.