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Interest rate resets with NSC - protection against rate changes
RBI Floating Rate Savings Bonds 2020 (Taxable) are government-backed bonds where the interest rate is not fixed but floats based on the prevailing National Savings Certificate (NSC) rate. The rate is reset every six months (January 1 and July 1), providing protection against interest rate changes.
The interest rate is calculated as NSC rate + 35 basis points (0.35%). So if NSC rate is 7.7%, the FRSB rate becomes 8.05%. This ensures you always earn a premium over small savings schemes.
These bonds replaced the earlier 7.75% RBI Bonds (discontinued in 2020) and are designed for long-term savers who want sovereign safety with floating rate protection against inflation.
Rate resets every 6 months based on prevailing NSC rate. Interest compounded semi-annually but paid every 6 months.
Interest rate resets every 6 months linked to NSC rate, protecting you against both rising and falling rate scenarios.
Backed by the Government of India through RBI. Zero credit risk - the safest investment category.
Always earn 35 basis points more than NSC rate. Currently 8.05% vs NSC's 7.70%.
Interest paid every 6 months (January and July), providing regular income stream.
Unlike some small savings, there's no maximum investment limit. Invest as much as you want.
Fixed 7-year lock-in with early exit only for senior citizens (60+) after minimum holding.
Can exit after 6 years from issue date with 50% penalty on last interest.
Can exit after 5 years from issue date with 50% penalty on last interest.
Can exit after 4 years from issue date with 50% penalty on last interest.
Note: Investors below 60 years cannot exit before 7-year maturity. Nomination facility is available. Bonds are non-transferable and cannot be traded in secondary market.
Visit any authorized bank branch (SBI, other PSU banks, select private banks). Fill application form with KYC documents.
Some banks offer online application through net banking. SBI, HDFC, ICICI have enabled digital purchase.
Stock Holding Corporation offices also offer FRSB subscriptions as authorized by RBI.
| Aspect | Details |
|---|---|
Tax Treatment | Fully Taxable |
Tax Rate | As per income tax slab |
TDS | 10% if interest > ₹40,000/year (₹50,000 for seniors) |
Section | Income from Other Sources |
| Aspect | Details |
|---|---|
80C Benefit | NOT Available |
Wealth Tax | Not applicable (abolished) |
Form 15G/15H | Can be submitted to avoid TDS |
Tax Advantage vs FD | None - similar treatment |
Note: Unlike tax-free bonds or PPF, FRSB interest is fully taxable. However, senior citizens can claim deduction up to ₹50,000 under Section 80TTB for interest income from banks, post office deposits, and cooperative societies (but NOT for FRSB - check with tax advisor).
| Feature | RBI FRSB | Bank FD | G-Secs |
|---|---|---|---|
| Current Rate | 8.05% (floating) | 7-7.5% | 7.1-7.3% |
| Rate Type | Floating (NSC linked) | Fixed | Fixed |
| Tenure | 7 years (fixed) | Flexible (7 days-10 yrs) | 1-40 years |
| Liquidity | Low (lock-in) | Medium (penalty) | High (secondary mkt) |
| Safety | Sovereign | DICGC (₹5L) | Sovereign |
| Tax on Interest | Slab rate | Slab rate | Slab rate |
7-year mandatory lock-in for non-seniors. Cannot sell or transfer. Money is completely illiquid.
If NSC rates fall, your FRSB rate also decreases. Unlike fixed-rate bonds, future income is uncertain.
Interest is fully taxable at slab rates. High tax bracket investors lose significant returns to tax.
Common questions about RBI Floating Rate Bonds
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