Should you lock your FD before banks cut interest rates further?

In the wake of the Reserve Bank of India’s recent decision to hold the repo rate steady amid growing expectations of a rate cut in the near future, several banks have already begun reducing their fixed deposit (FD) interest rates. For risk-averse investors who rely on FDs for stable returns, this presents a timely opportunity to lock in current rates before they drop further. Major banks like HDFC and ICICI have already trimmed their FD rates by up to 25 basis points, setting the stage for a broader downward trend across the sector.

Which banks are offering the highest FD rates right now?

Despite the arrival of a rate-cut cycle, several banks are still offering competitive fixed deposit rates of interest, especially on one to three year tenures. According to a recent survey carried out by Mint, HDFC Bank is currently offering up to 6.85% interest on FDs with tenure between 15 to 21 months, while maximum of 7.35% can be earned by senior citizens. ICICI Bank provides 6.60% for deposits between two and five years, while Kotak Mahindra Bank offers a similar 6.60% for FDs between 391 days and 23 months. These are among the best rates available from large private banks at present.

Small finance banks offer even higher returns

For investors willing to take slightly more risk in exchange for better returns, small finance banks (SFBs) remain the most lucrative option. Others such as Unity Small Finance Bank are paying as much as 9.10% on specific tenors, followed by North East Small Finance Bank at 9.00% and Suryoday Small Finance Bank at 8.80%. While the above returns are inviting, however, one must keep in mind that SFB deposits, while they are covered under the ₹5 lakh DICGC insurance limit, could potentially be riskier because they have smaller balance sheets and less operational scale.

Senior citizens retain superior rates

Banks continue to offer a premium to senior citizens of about 25 and 75 basis points over the regular FD rates. Public sector banks, in particular, offer the best senior citizen FD offers. Bank of Maharashtra, for example, offers 7.95% for tenures near about 400 days, Punjab & Sindh Bank offers 7.75%, and Indian Bank offers up to 7.65%. These schemes are perfect for retired folks who would want to lock in stable income over the medium term, even as interest rates begin to soften.

Should you break existing FDs to reinvest?

While locking in higher rates now makes strategic sense, breaking existing FDs should be done cautiously. Most banks levy penalties for premature withdrawal, typically around 0.5% to 1%, and you may also lose out on the original compounding benefits. Experts suggest reviewing your portfolio carefully—only FDs earning significantly lower returns than current offerings should be considered for reinvestment after factoring in the penalty.

What should investors do now?

If you have idle funds or FDs nearing maturity, this is a good time to act. Consider booking fixed deposits with one to three-year tenures to benefit from today’s peak rates before banks make

further downward revisions. Compare rates across banks, and don’t overlook the higher yields from small finance banks if you’re comfortable with the additional risk. Senior citizens should make the most of the enhanced interest rates available through special FD schemes.

With these indications pointing to a softer interest rate environment, any fixing of your FD today could ensure stable and good returns over the next couple of years. Act fast, review your existing deposits, and avail of the best rates available till they remain. For risk-averse investors, this is one of the last opportunity windows to lock in yield in a declining rate scenario.