RBI Introduces Floating Rate Savings Bonds with 8.5% Interest Rate
The Reserve Bank of India (RBI) has confirmed that the interest rates for its floating rate savings bonds (FRSB) will remain steady at 8.5% for the period from July to December 2025. This rate mirrors the previous half-year’s rate, which was effective from January to June 2025. The RBI’s announcement, made on July 1, 2025, indicates that the coupon rate for these bonds will continue to be 8.05%, calculated as 7.70% plus an additional 0.35%.
Interest Rate Determination
The interest on floating rate savings bonds is adjusted biannually. The current rate is set at 0.35% above the National Savings Certificate (NSC), a government-backed small savings scheme. As of June 30, 2025, the NSC offers a fixed annual return of 7.7%, which has not changed for the July to September quarter. This stability in interest rates is part of the government’s broader strategy to maintain consistency across various small savings schemes, including the Public Provident Fund (PPF) and Senior Citizens Savings Scheme (SCSS).
Interest payments for the FRSB are made semi-annually, specifically on January 1 and July 1 each year. It is important for investors to be aware that the interest earned on these bonds is fully taxable. Additionally, Tax Deducted at Source (TDS) will apply if the annual interest exceeds ₹10,000. However, there are no tax deduction benefits available for the initial investment in these bonds.
Future Interest Rate Adjustments
The next potential revision of the NSC interest rate is scheduled for September 30, 2025. Any changes made at that time will influence the RBI bonds starting January 1, 2026, which is the next reset date for the FRSB. Investors should keep this timeline in mind, as it could affect their returns on investment in the upcoming year.
The RBI’s floating rate savings bonds are designed to provide a reliable investment option for those looking for a stable return. The bonds are particularly appealing due to their connection to the NSC, ensuring that they remain competitive in the savings market.
Key Features of RBI Floating Rate Savings Bonds
The RBI floating rate savings bonds come with several important features. The minimum investment required is ₹1,000, with subsequent investments also in multiples of ₹1,000. Notably, there is no upper limit on the total investment amount. The bonds have a tenure of seven years, which includes a lock-in period.
Most investors cannot withdraw their funds prematurely. However, senior citizens have some flexibility. Individuals aged 60 to 70 can withdraw after a six-year lock-in, while those aged 70 to 80 can do so after five years. Investors over 80 years old may encash their bonds after just four years. In cases of joint holdings, the eligibility for premature withdrawal is determined by the age of any one of the bondholders.
If eligible investors choose to redeem their bonds early, they may face a penalty. After the minimum lock-in period, they can surrender their bonds after the 12th,10th, or 8th half-year, depending on their age group. However, a penalty of 50% of the interest due for the last six months will be deducted. Payments for premature redemptions are processed on the next scheduled interest payout date, which occurs on either January 1 or July 1.
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