Amid Falling Interest Rates, Should You Lock In FDs

If you are a senior citizen and invest in fixed deposits to get a regular amount of money, this is the time to review your investments in fixed deposits. As the Reserve Bank of India (RBI) reduced the repo rate in the latest monetary policy committee meeting on April 9, 2025, the rates for lending and borrowing will also come down.

Ajit Banerjee, president and chief investment officer, Shriram Life Insurance Company, highlights the change in RBI’s stance. He says, “The rate cut of 25 bps was accompanied by a unanimous decision by MPC to change its stance from 'neutral' to 'accommodative'. From the Governors Post MPC meeting statement, it could be also inferred that RBI would ensure adequate liquidity in the system going forward to ensure effective transmission of the rate cuts to the borrowers.”

This is the second time this year that RBI has reduced the repo rate, and experts suggest that the rate may further be reduced.

Amid this,

Should You Lock Your Fund Into Fixed Deposits For A Guaranteed Income?

Preeti Zende, a Sebi-registered investment adviser and founder of Apanadhan Financial Services, throws light on the factors that may add to the easing of rates, says, “We had witnessed good FD interest rates post-COVID. Now, as per RBI's policies, the country's inflation is starting to get under control, and that's why RBI has now started lowering the interest rate for the last two quarters, so the trend will continue throughout the year, which will lead further reduction of 50 basis points in the interest rate, so it is better to lock your lumpsum in FDs”.

Currently, bank FD interest rates range from 7 per cent to 10 per cent. However, these would go down taking in the effect of the repo rate cut.  

Is It Better To Lock Your Money In Long-Term FDs Despite Lower Rates, Or Opt For Short-Term FDs Offering Higher Returns?

“The tenure of FD should be matched with your financial goals. So instead of matching the highest interest rate, select the term of your financial goal. Only a small amount of excess money can be invested in the maximum interest rate term to earn maximum interest”, points out Zende.

She adds, “In the current volatile market, you must follow the asset allocation required as per your financial goals. Investing in FDs and recurring deposits (RDs) is are most suitable financial product for the goals that are 3 years away for those whose income is less than Rs 12 lakh. For a higher tax bracket, they can check debt mutual funds where they can extend tax liability or arbitrage funds, which are being taxed as per equity MFs”.

Financial goals and asset allocation should be at the core of making financial decisions. So, if the goal is long-term, staying in equity despite volatility in the market can do better than investing in FDs. However, balancing the portfolio with a diverse asset group is necessary to minimise the risk. Therefore, FDs and other fixed-income instruments should be utilised.

How Can Seniors Ensure Portfolio Stability While Maximising Returns?

Zende suggests, “Senior citizens can have a good blend of government schemes such as Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS), RBI Bonds and bank FDs as a base of their portfolio and for regular income. But they need to have smaller exposure in the equity asset class with equity MFs as balanced advantage funds, hybrid funds, and night index funds for earning inflation-hedged returns, not to run out of money in their retirement years".

So, while this is the time to book FDs to lock in higher rates, it is equally important to keep the portfolio balanced with both long- and short-term investments, and a mix of debt and equity.