FDs to PPF: A guide to debt investing after RBI rate cuts

Banks lowered FD rates after RBI's 125-bps rate cuts in 2025, but small savings rates are stable

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With inflation easing and expected to stay softer than earlier projections, Reserve Bank of India (RBI) cut the repo rate by 25 basis points to 5.25% at its 5 December policy meeting.

This takes the cumulative cut in 2025 to 125 bps, from 6.50% in January. Banks have moved quickly to mirror this shift, cutting deposit rates across several tenures. Over the past year, most banks have reduced 1-3 year fixed deposit rates by 15-125 bps, according to BankBazaar.com data. In contrast, interest rates on small savings schemes remained unchanged since January 2024. Against this backdrop, we highlight select debt products—some suited for parking short-term funds, others for long-term goals such as retirement. A few also offer tax efficiency.

Bank FDs for lower tax slabs

As of 12 December, public sector banks were offering 6.15-6.70% per annum on 1-2 year fixed deposits (FDs) and 5.9-6.5% on 2-3 year tenures, according to BankBazaar.com data. Leading private sector banks were offering 6.4—6.7% for similar maturities. So, is this a good time to lock in current rates? Yes, says Mrin Agarwal, director at finance education firm Fin-safe. “FDs work well for parking short-term money and for investors seeking a steady income. Such investors can consider locking into some FDs now.”

That said, allocations to FDs should be limited unless you fall in the lowor zero-tax brackets, as FD interest is taxed at the investor's slab rate. While FDs can play a role in a short-term debt portfolio, they are not ideal as core holdings because their post-tax returns tend to lag debt funds, said Abhishek Kumar, founder of Sahaj Money and a Sebi-registered investment adviser.

Good picks for small savings