RBI Floating Rate Savings Bonds (FRSB 2020) are a government-guaranteed investment offering interest rates linked to the NSC rate plus a 35 basis point spread. With the current rate at 8.05%, these bonds offer a compelling alternative to bank fixed deposits, especially for conservative investors seeking higher guaranteed returns.
How RBI Floating Rate Bonds Work
The interest rate resets every 6 months based on the prevailing NSC rate plus 0.35%. Current rate is 8.05% (NSC 7.7% + 0.35%). Interest is paid semi-annually on January 1 and July 1. The tenure is fixed at 7 years with no premature withdrawal option (except for senior citizens above 60 who can exit after 4 years, and those above 70 after 5 years, and above 80 after 6 years). Minimum investment is ₹1,000 with no maximum limit. Available through select banks in demat or certificate form.
FRSB vs Bank Fixed Deposits
FRSB rate of 8.05% beats most bank FDs by 0.5-1.5%. Government guarantee makes FRSB as safe as PPF — no DICGC limit concerns that exist for bank FDs above ₹5 lakh. The floating rate protects against falling rates (rate cannot drop below the NSC benchmark) while benefiting from rate increases. However, FDs offer flexible tenure and premature withdrawal, while FRSB locks you in for 7 years. For money you do not need for 7 years, FRSB clearly wins on returns and safety.
Tax Treatment
Interest from FRSB is fully taxable at your income slab rate, similar to FD interest. TDS is not deducted on FRSB interest (unlike FDs), so you must account for the tax liability while filing ITR. The bonds do not qualify for Section 80C deduction. For investors in the 30% bracket, post-tax returns of approximately 5.6% are still competitive with post-tax FD returns of 4.5-5.2%.
Who Should Invest in FRSB
Conservative investors with a 7-year horizon seeking the highest guaranteed returns. Retirees who have maxed out SCSS (₹30 lakh limit) and need additional fixed-income allocation. Investors with surplus above ₹5 lakh per bank seeking government-guaranteed safety without DICGC limit concerns. Those who expect interest rates to remain elevated or rise further, as the floating rate mechanism benefits from higher rates.
Combining FRSB with Other Instruments
A diversified fixed-income portfolio could include: SCSS (₹30 lakh) at 8.2% for quarterly income, FRSB at 8.05% for 7-year growth, PPF at 7.1% for tax-free returns and 80C benefit, and liquid funds for emergency reserves. This combination provides safety, regular income, tax efficiency, and liquidity across different time horizons.
Can I buy FRSB online?
FRSB are available through authorized banks like SBI, HDFC, ICICI, and others. Some banks allow online application through their net banking portal. You need a savings account with the bank and KYC documents. The bonds are held in demat form or as a certificate based on your preference.