State Bank of India (SBI), the country’s largest public sector bank, has taken a step that may disappoint many fixed deposit (FD) investors. The bank has once again reduced its FD interest rates by 0.20%. This marks the second consecutive month that SBI has cut rates, creating concern among conservative investors who rely on FDs for secure returns. The new interest rates have come into effect from May 16, 2025.
This development could significantly impact your returns, especially if you’re planning to invest large sums like ₹5 lakh or ₹10 lakh. The rate cut may seem small at first glance, but over time, it can result in a big difference in your interest income. Let’s break this down and understand the full picture.
What’s Changed from May 16?
Starting May 16, SBI has revised its FD rates. For a one-year fixed deposit, the bank will now offer an interest rate of 6.5%. Previously, it was 6.7%. Though the difference is only 0.20%, the reduction means lesser returns for investors.
Here’s a simple example. If you invested ₹10 lakh in a 1-year FD at 6.7%, your return would have been ₹67,000 in interest. But with the new 6.5% rate, you’ll now receive only ₹65,000. That’s ₹2,000 less for the same investment. If your FD amount is even larger or your tenure is longer, the loss will be much more noticeable.
Special FD Scheme Amrit Kalash Also Hit
The bank hasn’t stopped with regular FDs. Even SBI’s popular special FD scheme, “Amrit Kalash,” has seen a rate cut. This scheme, with a maturity period of 444 days, was previously offering 7.05% interest. That’s now reduced to 6.85%.
This means that even if you’re investing in special or limited-period deposit schemes, you’re no longer getting the earlier high returns. Investors who were relying on Amrit Kalash for slightly better interest will now have to settle for less.
Why Are Banks Cutting Interest Rates?
You may wonder why SBI, and possibly other banks soon, are cutting interest rates now. One of the biggest reasons is the monetary policy set by the Reserve Bank of India (RBI). When RBI hints at stable or falling repo rates — the rate at which RBI lends money to banks — the banks, in turn, tend to reduce their deposit and lending rates.
Another reason is surplus liquidity. If banks are already receiving enough deposits from customers, they may not feel the need to attract more by offering higher interest. So they reduce the FD rates to balance their internal cost of funds.
Impact on Senior Citizens and Middle Class
This rate cut will affect different types of investors in different ways. Senior citizens are likely to feel the most pain. Many retirees depend on fixed deposits for their regular monthly income. A fall in FD rates directly affects their earnings and financial comfort.
Similarly, salaried individuals, homemakers, and middle-class families who prefer FDs for safe and predictable returns will also be impacted. With inflation rising and returns falling, the real value of their savings might reduce over time.
Should You Still Invest in FDs?
If you already have an FD, don’t panic. The new rates apply only to fresh deposits and renewals made after May 16. Your existing FDs will continue to earn the agreed-upon interest rate until maturity. However, if your FD is about to mature, think twice before renewing it blindly.
You may want to explore alternatives such as debt mutual funds, senior citizen savings schemes, or even recurring deposits (RDs) if the rate is more favorable. These options may offer slightly better returns, though with different risk profiles.
Make sure to check which scheme offers the best balance between safety, liquidity, and returns for your financial goals.
Plan Carefully Before Locking In
It’s important to remember that fixed deposits are long-term instruments. Once you lock in at a rate, you can’t change it until maturity. So if interest rates fall further in the coming months, it might seem like a good idea to invest now. But if rates rise later, you’ll be stuck with a lower return.
Hence, evaluate your options. Compare across banks and NBFCs, some of which may offer higher interest on FDs. Also consider splitting your FD into different tenures instead of locking the full amount into a single term.
Conclusion: Time to Rethink Your Strategy
This rate cut is a clear reminder that relying only on FDs for income may not be the best strategy anymore. With SBI reducing rates for two months in a row, there’s a real possibility other banks might follow soon. If you delay action now, you could miss out on better rates or smarter investment opportunities.
So, if you’re planning to park a large amount of money — ₹5 lakh, ₹10 lakh, or more — take a closer look at what returns you’re actually getting. Even a 0.20% cut can make a noticeable difference in the long run. Stay alert, stay informed, and make sure your hard-earned money continues to work efficiently for you.
Missing this update could cost you thousands. Act now, review your options, and protect your savings from falling returns!
