The RBI MPC today kept the repo rate steady at 5.25% for the third time in a row, with the last adjustment made back in December 2025. FD investors have been struggling with low interest rates and were really hoping for a rate hike to boost their returns. Their optimism was fuelled by rising inflation, which is a key factor that the RBI considers when deciding on repo rate changes.
While the RBI’s decision to continue the pause on the repo rate might have stopped immediate increase in FD rates, it doesn’t mean that a rate hike in the coming MPCs is off the table.
Adhil Shetty, CEO, BankBazaar, says for depositors, today's policy pause provides a degree of reassurance.
"The RBI has raised its inflation forecast for FY27 to 5.1% while keeping the repo rate unchanged at 5.25%, suggesting that interest rates may remain elevated for longer than previously expected. This reduces the likelihood of any immediate decline in fixed deposit rates and supports the current return environment for savers."
Beside repo rate, there are many other factors at play such as deposit-credit ratio, 10-year G Sec yield and attractive interest rates of small savings schemes that influence banks' decision on raising FD rates.
Looking at the current situation, many of these indicators suggest that banks may increase FD rates in the coming months, providing relief to a lot of investors looking for a respite after the low FD rate cycle triggered by a 125 bps repo rate cut in 2025.
Let’s discuss the factors that cause banks to raise interest rates on FDs.
Repo rate- Brief history
| Date | Repo rate (%) | Change (%) |
| 07-Feb-25 | 6.25% | -0.25% |
| 09-Apr-25 | 6.00% | -0.25% |
| 06-Jun-25 | 5.50% | -0.50% |
| 06-Aug-25 | 5.50% | 0.00% |
| 05-Dec-25 | 5.25% | 0.25% |
| 06-Feb-26 | 5.25% | 0.00% |
| 08-Apr-26 | 5.25% | 0.00% |
| 05-Jun-26 | 5.25% | 0.00% |
Rising inflation
Prices of fuel, gas, household and other items rose in India in the wake of the Iran-Israel conflict. The recent US’ attacks on Iran and Israel’s attack on Lebanon have aggravated the crisis further, stoking fresh fears on rising fuel prices, even though the US House of Representative has voted to halt the Iran war, and Israel’s negotiations with Lebanon for a ceasefire are going on. Repercussions of these conflicts are being felt in the form of rising inflation across the world, including India.
From October 2025’s low of 0.25%, inflation in India rose to 3.48% in April 2026. The data for May is yet to come but experts expect a higher rate.
When inflation rises, the RBI reacts by increasing the repo rate. It provides banks a cushion to increase FD rates, which can’t be ruled out in the near future.
Top 5 FD rates from PSU banks
| Bank | Highest FD Rate (%) | Tenure |
| Punjab & Sind Bank | 6.75% | 666 days |
| Bank of India | 6.70% | 3 years |
| Bank of Maharashtra | 6.65% | 400 days |
| Central Bank of India | 6.65% | 333 days |
| Union Bank of India | 6.65% | 555 days |
Source: Paisabazaar
Top 5 FD rates from private sector banks
| Bank | Highest FD Rate (%) | Tenure |
| DCB Bank | 7.50% | 24 months to less than 25 months; 34 months to less than 35 months; 60 months to 61 months |
| CSB Bank | 7.35% | 18 months |
| SBM Bank India | 7.30% | Above 18 months to less than 2 years 3 days |
| Bandhan Bank | 7.25% | 2 years to less than 5 years |
| City Union Bank | 7.25% | 555 days |
Source: Paisabazaar
Top 5 FD rates from small finance banks
| Bank | Highest FD Rate (%) | Tenure |
| Suryoday Small Finance Bank | 8.10% | 30 months |
| Utkarsh Small Finance Bank | 8.10% | 666 days |
| Shivalik Small Finance Bank | 7.80% | 21 months 1 day to 22 months |
| Jana Small Finance Bank | 7.77% | Less than 3 years to 5 years |
| ESAF Small Finance Bank | 7.75% | 2 years to less than 3 years |
Deposit-credit ratio indicates banks are under pressure to garner deposits
Adhil Shetty, CEO, Bankbazaar.com, says banks operate on a simple principle of balancing incoming deposits against outgoing loans and other obligations.
“If credit demand is strong but deposits are scarce, as we've seen through early 2025, banks raise FD rates to attract savers. Conversely, if loans are weak and deposits pile up, they cut rates.”
Shetty further says banks also monitor credit-to-deposit ratios closely.
“A high ratio signals deposit scarcity and justifies rate hikes. Additionally, when banks struggle to borrow from each other, signalling system-wide cash shortage, they raise FD rates to attract deposits.”
If banks have robust lending and deposits are falling, they are likely to increase interest rates on FDs to attract more depositors. The CD ratio of Indian banks climbed to a very high level of 82 percent on December 15, 2025, and indicates that banks have very good demand for loans in comparison to deposits that they have garnered. Therefore, banks are continuously looking for resource mobilisation to support loan growth. Raising interest rates is one of the primary tools which they can utilise to mobilise more deposits.
10-year G Sec yield is not coming down
Banks try to keep FD interest rates higher than government securities to attract investors. Since the 10-year G-Sec yield is considered as an important benchmark for many interest rates in the country, looking at its rise in the last few months gives the impression that banks may also increase their fixed deposit rates in the future.
The 10-year G-Sec is continuously hovering around 7%. On June 5, 2026, the yield stood at 6.961%. An elevated G-Sec yield suggests that the market is expecting a higher rate on deposits.
Small savings schemes have been offering attractive rates
Bank FDs also face stiff competition from small savings schemes which have been offering attractive rates. Since a large number of people invest in small savings scheme, the government has avoided lowering interest rates on small savings schemes since December 2024. If small savings schemes keep offering higher rates, banks can’t keep FD interest rates low for a long time.
Small savings scheme interest rates
| Scheme | Interest Rate (%) | Tenure / Maturity |
| Senior Citizen Savings Scheme (SCSS) | 8.2 | 5 years |
| Sukanya Samriddhi Account (SSA) | 8.2 | 21 years (maximum) |
| National Savings Certificate (NSC) | 7.7 | 5 years |
| Kisan Vikas Patra (KVP) | 7.5 | 115 months |
| Monthly Income Scheme (MIS) | 7.4 | 5 years |
| Post Office Time Deposit (5-year) | 7.5 | 5 years |
| Public Provident Fund (PPF) | 7.1 | 15 years |
Source: Post office website
What should an investor do if banks increase FD rates?
Shetty says if rates rise, investors with unlocked capital should lock in returns promptly, especially at longer tenors like five years, where the rate differential is widest.
Vijay Kuppa, CEO of InCred Money, advises conservative investors to lock in FDs and stagger maturities.
Kuppa’s advice for moderate investors is to allocate more to fixed income.
Aggressive investors can rebalance portfolios while maintaining long-term equity exposure, suggests Kuppa.
