RBI Floating Rate Bonds

What it answers

Where can a conservative Indian saver park money with sovereign safety and an interest rate that does not get stranded when rates move? The RBI Floating Rate Savings Bonds, 2020 (Taxable), are designed for exactly that, offering a government guarantee with a coupon that floats rather than stays frozen.

How the rate resets

Unlike a fixed deposit locked at one rate, these bonds reset their coupon every six months, on 1 January and 1 July. The rate is pegged to the National Savings Certificate (NSC) rate plus a fixed spread of 35 basis points (0.35%). For the January-June 2026 period the RBI kept the rate at 8.05%, that is the prevailing NSC rate of 7.70% plus the 0.35% spread. Interest is paid out semi-annually; there is no cumulative option.

This linkage means the bond's payout tracks small-savings rates, so investors are partly protected if rates rise but also exposed if the NSC rate is cut.

Key terms and who can buy

The bonds carry a 7-year tenure with a lock-in, and are open to resident individuals and Hindu Undivided Families (HUFs). They are issued in demat form (Bond Ledger Account) and cannot be traded in the secondary market, so they are a hold-to-maturity instrument. Premature exit is allowed only for senior citizens under specified age-linked lock-in conditions.

The catch on tax

The big caveat is in the name: these are taxable bonds. The interest is fully taxable at your slab rate, and TDS applies, so the headline 8.05% is a pre-tax figure. For someone in the top tax bracket the post-tax return is much thinner.

Still, for risk-averse savers, especially retirees, these bonds combine sovereign safety with a rate that adjusts over time, making them a popular alternative to long fixed deposits, provided you can accept the seven-year commitment and the slab-rate tax.