FD Earnings After Repo Rate Cut: Whenever RBI i.e. Reserve Bank of India takes a big decision, it directly affects your pocket. Recently on June 6, RBI has cut the repo rate by 50 basis points i.e. half a percent in the Monetary Policy Committee meeting. This means that now the repo rate has fallen from 6% to 5.5%. In February and April this year also, RBI had cut the rate by 0.25-0.25 percent twice in a row, so overall this is the third cut this year.
Now while this cut has brought relief to the loan takers, because they will now get loans at lower interest, it can be a matter of concern for those who invest in fixed deposits (FD). Because banks have also started reducing the interest rates on FD and savings account to reduce their funding cost. This simply means that your earnings from FD can also be less than before.
What has changed due to RBI’s decision?
Along with this repo rate cut, RBI has also cut the Cash Reserve Ratio (CRR) by 1%. The monetary policy stance, which was earlier ‘Accommodative’, has now been made ‘Neutral’. This means that now it has become as important for RBI to control inflation as it is to support the economy. Because of this, banks are now quickly bringing down their interest rates so that they can get money at lower interest rates. Therefore, you have to keep in mind that the return on FD will no longer be as much as it used to be earlier.
What does the SBI report say?
SBI’s research report has confirmed that since February this year, FD interest rates have been cut by about 30 to 70 basis points i.e. more than half. Saving account rates have also now reached around 2.70%, which is less than before. This means that despite your money being in FD, it is not giving you as much benefit as was expected. Different banks are continuously reducing the interest rates of their savings account and FD, which is a challenge for investors.
Can there be further reduction?
SBI believes that in the coming financial year i.e. FY26, RBI can cut the repo rate by another 1 percent i.e. 100 basis points. If inflation i.e. CPI remains below 4% and credit growth also remains weak, then the possibility of reduction in interest rates in the next decision of RBI also increases. In such a situation, FD investors have to think wisely about their investment.
What will be better for FD investors?
Now the question is, what should people investing in FD do in this situation? First of all, keep in mind that many small and small finance banks are still offering good interest rates ranging from 7% to 8.25%. However, the risk is a bit higher in these banks, so it would be better if you invest only up to ₹ 5 lakh, because the limit of deposit insurance is this much.
Secondly, since interest rates are now gradually coming down, it may be better if you invest in long term FD, i.e. for 2 to 5 years. This can give you slightly better returns for a long period, and you can avoid repo rate cut.
Thirdly, do not invest the entire amount in one go. Divide it into FDs of different periods, so that you get more flexibility and you can settle any FD quickly if needed.