The Reserve Bank of India’s repo rate directly influences how much interest you can earn on your fixed deposits (FDs). When the RBI raises the repo rate, banks often increase fixed deposit (FD) rates to bring in more deposits. If the repo rate is reduced, banks generally cut FD rates as well.
This simple cause-and-effect relationship means that every change in the repo rate can affect your savings. This article breaks down how RBI’s repo rate changes affect your FD investment and returns.
What Is the RBI’s Repo Rate and Why Does It Change?
The RBI’s repo rate is the cost at which the central bank provides short-term funds to commercial banks to manage their daily liquidity needs. It acts as a key tool for managing money flow and influences how banks decide their lending and fixed deposit (FD) interest rates.
The RBI changes the repo rate of India to keep the economy balanced:
- When inflation rises, the RBI increases the repo rate so that borrowing becomes more expensive and spending slows down.
- When growth slows, the RBI reduces the repo rate to make borrowing cheaper and encourage lending and investment.
Every RBI repo rate change eventually affects your FD returns, since banks adjust deposit rates based on how easily they can borrow funds from the RBI.
How RBI Repo Rate Changes Impact FD Rates
A hike in the repo rate makes borrowing from the RBI more expensive for banks. To maintain liquidity, banks often raise fixed deposit (FD) rates to attract more funds from customers.
When the RBI cuts the repo rate, banks can borrow funds from the central bank at a lower cost. They rely less on public deposits and may lower FD interest rates as a result.
To put this simply:
- Higher repo rate means banks offer better FD returns.
- Lower repo rate means FD rates may decline.
Example: How Repo Rate Impacts Your FD Returns
Let’s take a simple example to understand how FD interest rates can change based on RBI’s repo rate cuts and hikes. The current RBI repo rate is 5.50%. Most people expect a RBI repo rate cut in December. If that happens and the RBI decides to reduce the rate by 25 basis points to 5.25%, banks will be able to borrow money at a lower cost.
To reflect this change, they may bring down fixed deposit (FD) interest rates. So, if the current FD interest rate is 7.25% for a 1-year term, they may bring it down to 7%. This means that even a small rate cut like this can lower your overall FD returns.
How the RBI’s Repo Rate in India Affects New and Existing FD Investors?
The effect of repo rate changes differs depending on whether you already have an FD or plan to open one. Here’s what you should know:
If You Already Have an FD
Your interest rate stays fixed until maturity. In other words, your FD returns stays the same regardless of whether the RBI increases the repo rate or cuts it. But when your FD matures, the new rate will apply if you choose to reinvest.
If You Are Planning a New FD
If RBI increases the repo rate, you may benefit from higher returns by booking an FD at a higher interest rate post the increase. However, if the repo rate falls, banks will also lower their FD interest rates.
That’s why, if the repo rate is expected to fall soon, locking in your FD at current higher rates may be a better option.
How Does a Repo Rate Hike Benefit Savers?
When the RBI increases the repo rate, banks borrow at higher costs. To attract public deposits, they raise FD interest rates. This is when savers stand to gain.
Here’s how you can make the most of a rate hike:
- Renew maturing FDs at new, higher rates to lock in better returns.
- Choose short-term FDs if you expect further hikes soon, so you can reinvest later at even higher rates.
- Compare across banks and NBFCs because some institutions pass on rate hikes faster than others.
How Does a Repo Rate Cut Affect Savings?
When the RBI cuts the repo rate, borrowing becomes cheaper for banks. But it also means that FD rates may fall. This is when you need to adjust your strategies.
Here’s what you can do:
- Lock in long-term FDs before rates fall further to preserve higher returns.
- Consider diversifying your investments by combining FDs with bonds or other fixed-income products that may offer better yields.
- Keep some liquidity through short-term FDs to take advantage when rates start rising again.
Final Thoughts: How Repo Rate Changes Shape Your Savings
The RBI repo rate directly influences how much you earn on your fixed deposits. When the rate goes up, banks usually increase FD returns to attract more savings. When it falls, the returns may decline.
Understanding this connection helps you decide when to invest or renew your deposits. By keeping track of RBI policy updates and comparing rates across banks, you can make better choices for your long-term savings.
If you’re looking for the highest FD interest rates from leading banks and NBFCs like Suryoday Small Finance Bank and Bajaj Finserv, you can explore the options available on the GoldenPi platform.
FAQs on How Repo Rate Changes Affects FD Rates
How does the RBI’s repo rate affect FD interest rates and returns?
When the RBI increases the repo rate, banks face higher borrowing costs and may raise fixed deposit (FD) interest rates to attract funds. When the repo rate decreases, borrowing becomes cheaper, and banks often lower FD rates, reducing potential returns.
How does bank rate differ from repo rate?
The repo rate is the rate at which the RBI lends money to banks against government securities. The bank rate is a longer-term rate without collateral. Both influence lending and deposit rates, but the repo rate has a more direct impact on FD returns.
What happens when RBI cuts repo rate?
A repo rate cut means banks can borrow funds at a lower cost. This often leads to a decrease in FD interest rates, making new deposits less rewarding for savers.
What is the current repo rate in India?
As of 23rd October 2025, the repo rate in India is 5.50%. The Reserve Bank of India (RBI) is expected to review it and announces changes (if any) in December.
How is repo rate linked to inflation?
The RBI changes the repo rate to keep inflation in check and maintain price stability. When inflation is high, it raises the repo rate to limit borrowing and spending.
When inflation is low, it cuts the repo rate to encourage credit and investment. This balance helps stabilise prices while influencing your FD earnings.
Disclaimer:
This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.
Fixed Deposit schemes are offered by financial institutions, which are regulated by the Reserve Bank of India. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.
