As lending rates soften and deposit rates remain stable, how should conservative investors approach fixed deposits?

The current economic situation is a case of perplexity for conservative investors. Notwithstanding the Reserve Bank of India’s (RBI) 100-basis-point repo rate and accommodative stance in the first six months this year, the Monetary Policy Committee (MPC) maintained a neutral stance in its August meeting to support growth amid global uncertainty.

Despite these measures, a noticeable asymmetry in monetary policy transmission remains; lending rates have eased considerably, but deposit rates, particularly for fixed deposits (FDs), have lagged significantly behind. However, this divergence may present a temporary window of opportunity for risk-averse investors.

Lock in rates quickly

Conservative investors could lock in these returns while they last as deposit rates are still performing well across the majority of banks. “FD laddering, which distributes investments over several tenures (i.e., six, nine months, one year, two to three years), is a sensible tactic. By providing liquidity and reinvestment options, this strategy allows investors to profit from potential future rate fluctuations without compromising current profits,” said Nehal Mota, co-founder & CEO, Finnovate.

Discover areas of higher yield

Small finance banks and a few NBFCs still provide interest rates of 8-9%, well above what most large public sector banks are currently paying. Even the savings accounts, in some instances, are linked to the repo rate of 5.5%. Such instruments can yield a sizeable yield enhancement, but need to be entered into cautiously with proper credit quality and regulatory position analysis.

Manage risk with discipline

Conservative investors must continue to prioritise capital protection. “To reduce counterparty risk, keep FD investments under each bank's ₹5-lakh deposit insurance coverage and diversify among issuers. Avoid placing sizable sums in long-term deposits with organisations that might have problems with credit or liquidity,” said Mota.

Be mindful of macro signals

With inflation stabilising (2.1% as of June 2025), there is scope for the RBI to maintain its dovish approach in future policy rounds. As deposit rates eventually catch up with the repo path, reinvestment opportunities could narrow.

Mota said, “In this phase of transition, the strategy is not to blindly pursue returns but to take current high yields carefully, be agile, and always prioritise capital safety.”