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Key Takeaways
The RBI has maintained the repo rate at 5.25% after reducing it by 25 basis points from June 5, 2026, in its fourth consecutive reduction. Banks usually adjust their deposit interest rates according to this policy stance. Thus, maintaining the repo rate offered FD rates a breather.
“Repo rate cut is usually followed by a decrease in FD rates. Hence, this window offers timely support for fixed deposit investors in the current uncertain scenario. Moreover, with the RBI having announced a stable economic path, it makes sense to lock in attractive FD returns at this point,” explained Saurabh Jain, co-founder and CEO, Stable Money.
Among public sector banks, Bank of India currently offers 7.45% for senior citizens. Punjab and Sind Bank offers up to 7.25%. SBI, Bank of Baroda, Canara Bank, and Union Bank offer rates between 7% and 7.15% on select tenures.
Private and small finance banks are paying more.
8.25%
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Private Bank
Senior citizens also get a tax break. Under Section 80TTB of the Income Tax Act, interest income up to ₹1 lakh annually is exempt from tax. Some banks also waive premature withdrawal penalties for senior citizen deposits.
Adhil Shetty, CEO of BankBazaar, warned that materially higher FD rates are unlikely in a stable-to-lower rate environment. He added, “Senior citizen benefits remain an advantage, though these too are expected to evolve as banks settle into the current rate cycle.”
The practical fix is laddering. The splitting of investments across short, medium, and long-term tenures helps manage liquidity and reduces reinvestment risk. It also ensures periodic access to funds without breaking the full deposit.
Do not put everything into a single high-rate small finance bank. Deposit insurance, bank stability, and withdrawal rules matter just as much as the headline rate, especially with smaller lenders offering very high returns.
Rates are good right now. They will not stay this way. The repo rate currently sits at 5.25%. Each cut that follows will pull FD rates lower with it. Senior citizens who want 8%-plus returns should act in the next few months, spread across at least two or three institutions, and pick tenures between one and three years.
Which bank gives the highest FD rate for senior citizens in June 2026?
Small finance banks are leading the charts. Shivalik Small Finance Bank tops the list at 8.30%, followed by ESAF and Suryoday at 8.25%. Among private banks, DCB Bank offers 8.00% and SBM Bank 7.80%. If safety is the priority over rate, Bank of India offers 7.45% among public sector banks. One important point is that deposits in banks are insured only up to ₹5 lakh per depositor per bank under DICGC cover. If you are putting more than that in a small finance bank for a higher rate, you are taking on risk above that limit.
Do senior citizens pay tax on FD interest and pension income?
FD interest above ₹50,000 a year attracts 10% TDS for senior citizens. Section 80TTB allows a ₹1 lakh deduction on deposit interest. Pension from an employer is taxed as salary, with a ₹75,000 standard deduction. Family pension is taxed as other income, with a ₹25,000 deduction or one-third of the amount, whichever is lower.
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