RBI rate hike: What happens to existing and new fixed deposits? Experts weigh in

The RBI repo rate hike to 5.50% may benefit fixed deposit investors over time. Here is what the rate hike means for existing FDs, new deposits, FD renewals and interest rates.

The Reserve Bank of India’s (RBI) 25-basis-point repo rate hike to 5.50% is likely to particularly impact those investing in fixed deposits (FDs). However, the impact will not be immediate for those who already hold FDs.

This is because a repo rate hike does not automatically change the interest rate on an FD investment that has already been booked. The rates continue to remain fixed for the agreed tenure. The impact is more relevant for new deposits and FDs that mature and are renewed after the bank revises its deposit rates.

Will existing FDs earn higher interest?

Adhil Shetty, CEO, BankBazaar, said, “The RBI's 25 basis point increase, to a repo rate of 5.50%, is a welcome step for savers, though the benefit will build up gradually. Banks usually revise deposit rates at their own discretion, and new deposits receive the higher rate first. Existing fixed deposits continue to earn the rate at which they were booked. With the RBI also moving to calibrated tightening, savers can keep an eye on when their deposits mature, so that each one renews at the prevailing rate. Laddering FDs, by splitting money across deposits that mature at different times, also keep part of the money accessible.”