Your debt portfolio with a lower tax-bite

Subscribe to enjoy similar stories. With significant easing in inflation and expectations of it remaining softer than projected earlier, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points (bps) to 5.25% in its 5 December policy meeting. With this, the repo rate is down by 125bps in 2025, from 6.50% in January to 5.25% now.

Keeping pace with this, banks have slashed their deposit rates across several tenures during this period. Over the last year, a vast majority of banks have introduced rate cuts of 15bps to 125bps on their 1- to 3-year fixed deposits (FDs) as per BankBazaar.com data. Interest rates on small savings schemes have, however, remained unchanged since January 2024.

Here we highlight a few debt products, some for parking your short-term money, while others are for serving your long-term goals, such as retirement. Some of these products are also attractive from a taxation perspective. As of 12 December, public sector banks were offering 6.15-6.70% per annum (p.a.) on their 1-to-2-year FDs and 5.9-6.5% p.a.

on their 2-to-3-year deposits, showed BankBazaar.com data. Leading private-sector banks are offering 6.4-6.7% for comparable tenure FDs. Is this a good time to lock in the current rates? Yes, according to Mrin Agarwal, director at finance education organization Finsafe.

“FDs can be used for parking money for short-term purposes. They are a good option for someone who wants a regular income flow. Such people can consider locking into some FDs now." That said, it’s best to limit the allocation to FDs unless you fall in the low- or zero-tax brackets.