The Reserve Bank of India (RBI) on Thursday kept its key interest rates unchanged at 6.50 percent for the third straight monetary policy meeting. However, the overall rise in rates gives fixed deposit (FD) investors a favourable scenario, experts say. They recommend considering FDs with interest rates exceeding 7-8 percent, particularly for senior citizens who may earn an additional 0.50 basis points in interest compared to others.
The time frames of one to three years are touted as the most rewarding tenures for FD investments.
The RBI policy and fixed deposit rates
Before hitting the pause button for the third time on Thursday, August 10, the central bank had raised the repo rate cumulatively by 250 basis points since the beginning of the rate hike cycle in May 2022. Notably, the rates remained unchanged during both the April and June meetings this year.
A significant shift occurred even in
fixed deposits as their interest rates began to rise when the RBI initiated repo rate hikes in May 2022. Over the subsequent 10 months, the central bank implemented a series of 2.5 percent repo rate increases until February 2023. The stability in interest rates is evident in the 10-year Government Security (G-Sec) yields, which have remained relatively steady between 6.9 percent and 7.2 percent since May this year.
During the period of RBI's repo rate hikes, banks eventually followed suit in raising their FD rates, albeit with some lag. Banks that initially delayed raising their FD interest rates have since been increasing them to catch up, while those that acted swiftly have now begun to reduce them.
The current FD rates offered by lenders
| Banks | For General Citizens (p.a.) | For Senior Citizens (p.a) |
| RBL Bank | 3.50% to 7.80% | 4.00% to 8.30% |
| IDFC First Bank | 3.50% to 7.50% | 4.00% to 8.00% |
| KVB Bank | 4.00% to 7.30% | 5.90% to 7.80% |
| Canara Bank | 4.00% to 7.25% | 4.00% to 7.75% |
| Punjab National Bank | 3.50% to 7.25% | 4.00% to 7.75% |
| Bank of Baroda | 3.00% to 7.25% | 3.50% to 7.75% |
| Kotak Mahindra Bank | 2.75% to 7.20% | 3.25% to 7.70% |
| Axis Bank | 3.50% to 7.10% | 3.50% to 7.85% |
| HDFC Bank | 3.00% to 7.25% | 3.50% to 7.75% |
| State Bank of India | 3.00% to 7.10% | 3.50% to 7.60% |
| ICICI Bank | 3.00% to 7.10% | 3.50% to 7.60% |
| IDBI Bank | 3.00% to 6.75% | 3.50% to 7.25% |
(Source: Bankbazaar)
More FD rate hikes are unlikely
Experts believe that the trend of rising interest rates has nearly run its course and there are reports of some banks already reducing their interest rates.
The overall impact of the 2.5 percent repo rate hike has substantially affected FD rates between May 2022 and June 2023. Given this transmission, the likelihood of a significant surge in FD interest rates appears slim unless there is a fresh repo rate hike.
FD rates are influenced by several factors, including the repo rate, the gap between credit growth rates, deposit growth rates, and overall liquidity in the banking system.
Investment strategy
Financial experts assert that the current climate presents an opportune time to secure a desired fixed-income allocation through bank FDs.
"Over the past 15 months, average interest rates on rupee deposits with banks have exhibited a consistent upward trajectory. This trend is mirrored in bank FD rates, which have shown persistent increments despite occasional periods of pause. For consumers, this presents an advantageous window to secure the most favourable rates and consider reinvesting their deposits for higher returns, particularly within the 1-3 year timeframe," said Adhil Shetty, CEO at BankBazaar.
Catch all updates on RBI policy here 
