RBI Slashes Interest Rates! Your Fixed Deposits Face Cuts – What Savers Must Do NOW!

The Reserve Bank of India (RBI) announced a significant monetary policy decision, cutting the benchmark repo rate by 25 basis points on Friday, December 5, 2025. This move by the Monetary Policy Committee (MPC), which voted unanimously for the reduction, also saw the standing deposit facility (SDF) rate revised to 5%, with the marginal standing facility (MSF) rate and Bank Rate set at 5.50%. The policy stance remains neutral.

Impact on Fixed Deposits

This latest repo rate cut is expected to trigger further reductions in Fixed Deposit (FD) rates by banks and small finance banks (SFBs). Many financial institutions had already begun adjusting their FD rates downwards by October, with the full transmission of earlier cuts still pending. While the changes will not be immediate and may vary across institutions, savers should anticipate lower returns on new deposits.

• Existing fixed deposits will remain unaffected by this change.
• New investors may receive lower maturity amounts as banks revise their rates.
• This development creates concern for depositors about declining returns on their savings.

Expert Analysis and Investor Behaviour

Ankur Jalan, CEO of Golden Growth Fund (GGF), highlighted the implications for savers and investors. He noted that banks typically lower deposit rates as their cost of funds decreases following an RBI repo rate cut. However, the reduction in deposit rates may not always mirror the exact margin of the RBI's cut.

• Banks are likely to trim deposit rates in the coming months, making it harder for savers to earn substantial returns.
• Lower interest rates often encourage wealthy investors and family offices to explore alternative investment products offering higher yields.

Shifting Investment Landscape

As deposit returns diminish, investors seeking to preserve real yields are increasingly looking towards alternative assets. Affluent investors and family offices are often redirecting capital towards products like real estate-focused Category II Alternative Investment Funds (AIFs).

• This shift can improve fundraising for AIFs and reduce the cost of capital for real estate developers.
• Consequently, project viability might strengthen, and opportunities within the AIF sector could expand.

Investor Strategy

With more banks anticipated to revise their FD rates soon, investors are advised to consider booking deposits at the current higher rates. The time lag in the transmission of the latest rate cut provides a window for savers to act and secure better returns before they are potentially reduced.

• Locking in deposits early can help investors secure more favourable returns.
• Fixed deposits remain a safe and stable option, but proactive booking is recommended.

Impact

• Savers may experience lower returns on new fixed deposits.
• Borrowers could eventually benefit from reduced loan interest rates.
• The shift towards alternative investments like AIFs might accelerate.
• Impact Rating: 8/10

Difficult Terms Explained

• Repo Rate: The interest rate at which the RBI lends money to commercial banks. A cut reduces borrowing costs for banks.
• Basis Points (bps): A unit of measure used in finance to denote the percentage of a basis point. 100 basis points equal 1 percent.
• Monetary Policy Committee (MPC): A committee responsible for setting the benchmark interest rate in India.
• Policy Stance: The general direction or approach of the central bank regarding monetary policy (e.g., neutral, accommodative, or restrictive).
• Standing Deposit Facility (SDF): A liquidity management tool that allows banks to deposit funds with the RBI at a specific rate, acting as a floor for short-term interest rates.
• Marginal Standing Facility (MSF): A lending facility provided by the RBI to banks to meet their short-term liquidity needs at a penal rate.
• Bank Rate: A rate set by the RBI that is used to influence the interest rates on loans offered by banks.
• Fixed Deposits (FD): A financial instrument offered by banks that provides investors with a fixed rate of interest over a specified period.
• Small Finance Banks (SFBs): Financial institutions that provide financial services to unserved and underserved segments of the population.
• Alternative Investment Funds (AIFs): Investment funds that pool capital from sophisticated investors for the purpose of investing in assets other than traditional securities like stocks and bonds.