After the Reserve Bank of India’s (RBI) decision to cut the repo rate by 50 basis points on June 6, 2025, many public and private sector banks have started reducing their Fixed Deposit (FD) interest rates.

Among the latest to make this move is Indian Bank, which has slashed its FD rates by up to 50 basis points across various tenures.

This won’t be good news for you if you are relying on Fixed Deposit interests during your retirement. To put it into perspective: a 25 bps cut on a ₹1 crore deposit translates to a loss of ₹25,000 annually in interest income.

Read this article on the negative effects of interest rate cuts on FDs.

Indian Bank Cuts Interest Rate on FDs

Indian Bank, a prominent public sector lender, revised its interest rates on term deposits effective June 9, 2025. The rate cuts range from 25 to 50 basis points, depending on the tenure of the FD.

Here’s a comparison of the old and new interest rates:

FD Tenure	Previous Rate	Revised Rate	Rate Cut
1 to 2 years	7.10%	6.60%	-50 bps
444 days	7.15%	6.90%	-25 bps
2 to 3 years	6.70%	6.40%	-30 bps
5 years	6.25%	6.00%	-25 bps
Above 5 years	6.10%	6.00%	-10 bps

This downward revision will impact investors planning medium- to long-term fixed deposit investments with the bank.

Read More – High Interest Fixed Deposit Investment Guide

Effect of Interest Rate Cut on FDs

To understand the real impact, let’s consider a fictional character, Ravi, who has invested ₹5 lakh in a 2-year FD with Indian Bank. Let’s see how the earnings have changed post-rate revision:

FD Tenure	Investment	Old Interest Rate	Old Returns	New Interest Rate	New Returns	Difference
2 years	₹5,00,000	6.70% p.a.	₹70,183	6.40% p.a.	₹66,074	₹4,109 less

So, Ravi ends up earning ₹4,109 less over 2 years due to the 30 bps rate cut. Multiply this across lakhs of depositors, and the cumulative effect is significant.

How Many Banks Have Reduced Interest Rates on FDs?

Indian Bank is not alone. Following the repo rate cut, several banks have reduced their fixed deposit (FD) interest rates to align with the revised monetary policy. According to a recent Economic Times report, here’s a list of banks that have reduced their FD rates:

Bank	Maximum Rate Cut	Remarks
Canara Bank	25 bps	Across multiple short-term tenures
Union Bank of India	35 bps	Most significant in 1–2 year tenures
Indian Overseas Bank	30 bps	Applies from June 10, 2025
HDFC Bank	20–25 bps	Varies by deposit amount and tenure
Axis Bank	25 bps	On tenures of 1 year and above
ICICI Bank	30 bps	Across retail FDs
Indian Bank	50 bps	Highest cut among PSU banks

This indicates a systemic shift towards lower deposit rates in the banking industry, affecting both short-term and long-term investors.

Best ROI on Which FD?

Let’s consider Anita, another fictional depositor, who has ₹2 lakh to invest in an FD. She considers various banks after the revised rates are posted. Here's a comparison of how much she would earn in 1 year:

Also Read - Indian Bank Net Banking – Step-by-Step Access & Features

Bank	Interest Rate (1-year FD)	Maturity Amount (1 year)
Indian Bank	6.60%	₹2,13,200
Canara Bank	6.75%	₹2,13,500
Union Bank of India	6.65%	₹2,13,300
Indian Overseas Bank	6.80%	₹2,13,600
ICICI Bank	6.60%	₹2,13,200
Axis Bank	6.50%	₹2,13,000

Among the options, Indian Overseas Bank offers the best ROI at ₹13,600 interest for a 1-year FD of ₹2 lakh. This makes it a preferred choice for short-term FD investors, while Indian Bank offers moderate returns in comparison.

Conclusion

With the RBI’s repo rate cut impact on FD rates across banks, depositors are now looking at lower returns on their investments. Indian Bank’s decision to cut FD rates by up to 50 bps is among the steepest moves by a PSU lender since the policy change.

As banks adjust to the monetary easing cycle, savers must reassess their options, comparing returns across institutions and exploring alternative instruments, such as debt mutual funds or government-backed schemes, to potentially achieve better yields.

After all, even a slight 25 bps difference could cost you ₹25,000 annually on a ₹1 crore FD — a sum not worth ignoring.

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