RBI Floating Rate Savings Bonds and Bank FDs: Key Differences

RBI Floating Rate Savings Bonds, 2020 (Taxable) are Government of India savings bonds issued through authorised receiving offices. Their coupon is linked to the prevailing National Savings Certificate (NSC) rate plus 35 basis points and resets every six months. They differ from an FD in two decisive ways: interest is paid out rather than compounded, and routine early access is much more limited.

How does the coupon work?

The RBI guidelines set the coupon at the prevailing NSC rate plus 0.35 percentage point. The rate resets on 1 January and 1 July; interest is paid on the following scheduled payment date. A historical coupon is not a current quote, so this article does not state one. Confirm the applicable half-yearly rate directly with an authorised receiving office before making a cash-flow plan.

There is no cumulative option. If an investor needs the interest to compound, that would require a separate reinvestment decision and may involve a different rate and tax outcome.

What are the scheme’s structural terms?

Feature	RBI Floating Rate Savings Bonds, 2020 (Taxable)	Typical bank FD
Issuer	Government of India	Bank
Rate	NSC rate + 0.35%; reset half-yearly	Contracted rate for the selected tenure
Payout	Half-yearly; no cumulative option	Cumulative or periodic options may be available
Normal term	Seven years	Varies by bank and tenure
Secondary-market sale	Not available	Not applicable; bank closure rules apply
Early access	Limited senior-citizen facility under scheme terms	Usually possible, subject to the bank’s terms and penalty

The RBI guidelines allow premature encashment for eligible senior citizens after four years (80 and above), five years (70 to below 80) or six years (60 to below 70). Payment is made on the following interest-payment date. Those windows are not the same as a general on-demand withdrawal facility.

Who can access the bonds and how are they held?

The RBI guidelines describe holdings in a Bond Ledger Account with a receiving office. They also list authorised entities such as SBI, nationalised banks, specified private banks and Stock Holding Corporation of India Limited. Availability through a particular branch or online channel can change, so verify the current receiving-office list and process before applying.

How should an FD comparison be made?

Compare the cash-flow job first. An FD may offer a choice of tenure and early closure subject to its rules; the FRSB has a seven-year normal term and pays interest out half-yearly. For a large deposit, bank deposits are covered by DICGC insurance only up to ₹5 lakh per depositor per bank, including principal and interest, whereas the FRSB is a Government of India obligation. Neither description removes the need to match liquidity needs with the product’s actual terms.

For a simple illustration, ₹10 lakh at an assumed 8% annual coupon produces ₹40,000 before tax every six months, assuming the coupon remained 8% for that half-year. The FRSB coupon may reset; the illustration is not a quote or return projection. Use the FD calculator for stated FD assumptions.

What about tax?

The RBI’s guidelines state that tax may be deducted when interest is paid unless a relevant exemption is declared. Interest is generally relevant to the holder’s tax position. Tax rules and forms can change; verify the latest Income-tax provisions and consult a CA for a personal filing position.

This explainer describes scheme mechanics and is not a recommendation to use a bond or FD.

Frequently asked questions

How is the FRSB coupon set?

The RBI's operational guidelines link it to the prevailing National Savings Certificate rate plus 35 basis points. It resets every six months. Confirm the current coupon with an authorised receiving office or the RBI before acting on a rate.

Can I sell these bonds on an exchange?

No. The scheme's bonds are not tradeable in the secondary market. The normal term is seven years; eligible senior citizens have specified premature-encashment windows after the applicable lock-in period.

Is the interest cumulative?

No. Interest is paid half-yearly. The RBI guidelines say there is no cumulative interest option. Interest and any TDS treatment should be checked against current tax rules and the receiving office's documents.

Sources

1. RBI: Floating Rate Savings Bonds, 2020 (Taxable)—operational guidelines RBI checked 23 August 2026

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