How RBI Rate Cut Can Impact Your Fixed Deposits and Savings

Delhi - The Reserve Bank of India (RBI) has reduced its key interest rate by 25 basis points to 6.25%, marking the first cut in nearly five years. This move aims to boost economic growth while inflation remains under control.  

While borrowers may benefit from lower loan EMIs, fixed deposit (FD) investors could face challenges. A lower repo rate often leads banks to reduce FD interest rates, potentially decreasing returns for depositors. However, the situation is more complex this time.  

Despite the rate cut, deposit rates might not drop immediately due to the high credit-to-deposit ratio in the banking sector. Banks still need to attract deposits to meet lending demands, which could keep interest rates stable for some time.  

For depositors, now may be the right time to invest in FDs and lock in current interest rates before further changes. Another crucial update is the increased Tax Deducted at Source (TDS) threshold on FD interest earnings. From April 1, 2025, interest income up to ₹50,000 will be exempt from TDS, compared to the previous ₹40,000 limit.