RBI Floating Rate Savings Bonds 2020 (Taxable)

What the RBI Floating Rate Savings Bond is

The RBI Floating Rate Savings Bond 2020 (Taxable), or FRSB, is a savings bond issued by the Government of India through the Reserve Bank of India. It replaced the old fixed-rate 7.75% RBI Savings Bond in July 2020. Because it is a sovereign obligation, there is effectively no credit risk — the return is as safe as the Government of India itself.

The word 'floating' is the whole point. Unlike a bank fixed deposit, where the rate is locked the day you invest, the FRSB coupon is reset twice a year. On 1 January and 1 July, the rate is set to the prevailing National Savings Certificate (NSC) rate plus a fixed spread of 0.35% (35 basis points). NSC is currently 7.70%, so the FRSB pays 7.70% + 0.35% = 8.05% for the July-December 2026 period. If NSC rises at the next reset, your coupon rises with it; if NSC is cut, your coupon falls. You are not locking in 8.05% for seven years — you are locking in 'whatever NSC pays, plus 0.35%'.

It is held in a Bond Ledger Account (an electronic record with the issuing bank), not in your regular demat account, and it does not trade on any stock exchange.

Current interest rate and rate history

For 1 July to 31 December 2026 the coupon is 8.05% p.a. The government left the NSC rate unchanged at 7.70% in its 30 June 2026 small-savings review, so the FRSB rate stayed at 8.05% — where it has sat since July 2023.

The history below shows how the coupon has actually moved since the bond launched in July 2020. It is a reminder that 'floating' cuts both ways: the rate started at 7.15%, and it only reached 8.05% when NSC was raised in 2023. If small-savings rates are cut in a future quarter, the FRSB coupon will follow at the next reset.

Key features — and the catches

The headline rate is attractive, but the terms are restrictive. Read these before you commit money you might need back.

• Tenure is 7 years. There is no cumulative option — you cannot let interest compound and take a lump sum at maturity. Interest is paid out half-yearly on 1 January and 1 July.
• Minimum investment is ₹1,000 (face value), in multiples of ₹1,000. There is no maximum — you can invest any amount.
• No premature withdrawal for anyone under 60. Your money is locked for the full 7 years. Senior citizens get a partial exit (see the next section).
• It is not tradable and not transferable. You cannot sell it on an exchange or gift it; it passes only to a nominee or legal heir on death.
• It cannot be pledged as collateral for a loan, unlike some other bonds and FDs.
• Interest is fully taxable at your slab and TDS is deducted — there is no Section 80C deduction and it is not a tax-free bond.
• NRIs are not eligible. Only resident individuals (singly, jointly, or on behalf of a minor) and Hindu Undivided Families (HUFs) can invest.
• Because the rate floats, you get no certainty on future income — a genuine trade-off against a fixed-rate FD or NSC.

Where and how to buy RBI bonds

The reliable, universally available route is a bank. FRSB applications are received by designated 'Receiving Offices' — the State Bank of India, all nationalised banks, and four private banks (HDFC Bank, ICICI Bank, Axis Bank and IDBI Bank). Most of these let you apply online through net-banking in a few minutes; you can also walk into a branch.

The RBI Retail Direct portal is a separate government channel that was built mainly for Government dated securities (G-Secs), Treasury Bills, State Development Loans and Sovereign Gold Bonds. Some banks and recent guides say FRSB can now also be subscribed there via a Bond Ledger Account, but coverage is described inconsistently across sources — so if you want to use Retail Direct, confirm on the live portal (rbiretaildirect.org.in) that FRSB is actually offered before relying on it. When in doubt, the bank route is unambiguous.

The step-by-step process through a bank:

• Step 1 — Log in to your bank's net-banking (or visit a designated branch) and find 'RBI Floating Rate Savings Bonds' / 'RBI Bonds' under investments or government schemes.
• Step 2 — Keep your PAN, Aadhaar and a linked savings account ready. KYC is usually pre-filled from your bank record; the interest and maturity proceeds are credited to this account.
• Step 3 — Enter the amount (minimum ₹1,000, multiples of ₹1,000) and add a nominee. The bond is held in a Bond Ledger Account, not a demat account.
• Step 4 — Pay from your linked account. You receive a Certificate of Holding as proof; keep it safe.
• Step 5 — Note your two payout dates (1 Jan and 1 Jul). If your total income is below the taxable limit, submit Form 15G (or 15H for seniors) to your bank to avoid TDS.

RBI bonds for senior citizens

The 7-year lock-in is relaxed only for senior citizens, and the age at which you invest decides how early you can exit. Older investors get a shorter lock-in. Premature withdrawal carries a penalty equal to 50% of the interest paid in the last (most recent) six-month period, and you must submit valid age proof to the bank.

For seniors comparing options, the direct rival is the Senior Citizen Savings Scheme (SCSS), which pays 8.2% versus the FRSB's 8.05%, is capped at ₹30 lakh, and gives an 80C deduction — but has a fixed rate you lock at entry. The FRSB has no cap and a floating rate. Both are taxed at slab. Many seniors use SCSS up to the ₹30 lakh limit first, then the FRSB for amounts beyond that.

How the interest is taxed

This is the single most misunderstood point about the RBI bond: it is NOT tax-free. The interest is added to your total income as 'Income from Other Sources' and taxed at your applicable slab rate. For someone in the 30% bracket, an 8.05% coupon is worth roughly 5.6% after tax — so the effective return depends heavily on your slab.

TDS (tax deducted at source) applies on the interest paid. If your total income is below the taxable threshold, submit Form 15G (or Form 15H if you are a senior citizen) to the issuing bank so TDS is not deducted. The FRSB also does not qualify for any Section 80C deduction — unlike NSC, SCSS or a 5-year tax-saver FD, the amount you invest does not reduce your taxable income.

If you are in the highest slab and specifically want tax efficiency, compare the post-tax FRSB return against genuinely tax-free options (such as tax-free PSU bonds on the secondary market) before deciding. For most investors in the 0-20% slabs, the FRSB's 8.05% remains competitive after tax.

RBI bonds vs bank FD, NSC and SCSS

The FRSB sits in the same shelf as the small-savings schemes and a bank FD. The right choice depends on whether you value a higher-but-floating rate, a fixed rate, a tax deduction, or liquidity. The table below lines them up on the factors that actually decide it.

Is the RBI bond right for you?

The FRSB is a strong fit for conservative resident investors who want a sovereign-safe 8.05% and do not need the money for seven years. It is especially useful for amounts above the SCSS ₹30 lakh cap, and for anyone who believes rates will stay high or rise (the floating feature then works in your favour).

It is a poor fit if you might need liquidity (there is no exit under 60), if you are chasing a locked-in fixed rate (a 5-year FD or NSC gives certainty), if you want a tax deduction (choose NSC, SCSS or a tax-saver FD), or if you are an NRI (you cannot invest at all). And in the top tax slab, weigh the ~5.6% post-tax return against tax-free alternatives.

• Good for: retirees and conservative savers wanting sovereign safety at 8.05%, and for parking sums beyond the SCSS cap.
• Think twice if: you may need the money early, want a rate locked for the full term, need an 80C deduction, or are in the 30% slab and prioritise post-tax yield.
• Not available to: NRIs (resident individuals and HUFs only).