RBI keeps 8.05% bond rate unchanged: Better than FDs and savings schemes?

State-backed bond offers a steady income option, but investors need to weigh returns, tax impact, liquidity and changing rates before choosing it

The Reserve Bank of India (RBI) has kept the interest rate on its Floating Rate Savings Bond (FRSB) unchanged at 8.05 per cent for the next six months, giving investors a state-backed fixed-income option that offers higher returns than several popular savings schemes and bank fixed deposits.

 

The RBI said the coupon rate on the Floating Rate Savings Bond 2020 (Taxable) from July 1 to December 31, 2026, will remain at 8.05 per cent. The interest will be payable on January 1, 2027.

 

The rate remains unchanged because the bond’s return is linked to the National Savings Certificate (NSC) interest rate. The government recently retained the NSC rate at 7.7 per cent for the second quarter of financial year 2026-27. The RBI bond carries a 0.35 per cent additional spread over the NSC rate, keeping its coupon at 8.05 per cent.

 

 

For investors looking for safer alternatives amid changing market conditions, the RBI bond remains an option because it carries a sovereign guarantee and provides regular interest payouts.

 

How RBI Floating Rate Savings Bond works

Unlike traditional fixed deposits where the interest rate is decided at the time of investment and remains unchanged, the RBI Floating Rate Savings Bond does not lock in a rate for the entire tenure.

 

The interest rate is reset every six months, on January 1 and July 1, based on the prevailing NSC rate.

 

This means:

 

• If the government increases NSC rates, the RBI bond interest rate can rise after the next reset.
• If NSC rates are reduced, the bond’s return can also decline.
• Investors do not get a guaranteed 8.05 per cent return for the entire seven-year period.

 

The bond currently offers an interest rate higher than many small savings schemes. However, investors need to consider taxation and liquidity before investing. 

 

RBI bond vs small savings schemes

Among government-backed savings products, the RBI Floating Rate Savings Bond currently offers one of the higher interest rates.

 

Some popular small savings scheme rates include: 

• Senior Citizen Savings Scheme (SCSS): 8.2 per cent
• National Savings Certificate (NSC): 7.7 per cent
• Monthly Income Account Scheme: 7.4 per cent
• Public Provident Fund (PPF): 7.1 per cent
• 5-year Post Office Time Deposit: 7.5 per cent

The RBI bond’s 8.05 per cent return is lower than SCSS but higher than several other small savings products.

 

However, SCSS is available only to eligible senior citizens and has investment limits, while RBI Floating Rate Savings Bonds do not have an upper investment limit.

 

How it compares with bank fixed deposits

The RBI bond also competes with bank fixed deposits, particularly for investors seeking predictable income.

 

Many large banks offer five-year FD rates below the RBI bond rate, while some small finance banks offer higher rates. However, bank deposits come with deposit insurance protection of up to Rs 5 lakh per depositor per bank under the Deposit Insurance and Credit Guarantee Corporation.