RBI Floating Rate Savings Bonds: 8.05% guaranteed, sovereign-backed — and the two trade-offs
The RBI Floating Rate Savings Bond pays 8.05% (Jan–Jun 2026) with sovereign safety and no upper limit. But there are two catches: a 7-year lock-in and fully taxable interest. For a 30% bracket taxpayer, the post-tax return is ~5.6% — lower than tax-free PPF or VPF. Here's when it makes sense and when it doesn't.
All figures and facts in this article are sourced directly from primary government and regulatory publications — including the Reserve Bank of India, SEBI, EPFO, the Income Tax Department, PFRDA, and IRDAI — and verified before publication. No claim is published from a single source without corroboration.
For informational purposes only. The FRSB interest rate is reset every six months. Verify the current rate at rbi.org.in or rbiretaildirect.org.in before investing.
The RBI Floating Rate Savings Bond (FRSB) 2020 is a government-backed savings instrument that currently pays 8.05% per annum — among the highest guaranteed returns available in India today, with sovereign safety (it is backed by the Government of India). For conservative savers wanting a guaranteed return higher than most fixed deposits, the FRSB is worth understanding, along with its main trade-offs: a 7-year lock-in and fully taxable interest.
Current interest rate and how it is set
Current rate: 8.05% per annum for the period January 1 to June 30, 2026.
The rate is "floating" — it is reset every six months (on January 1 and July 1) and is linked to the National Savings Certificate (NSC) rate, set at NSC rate + 0.35%. When the NSC rate (currently 7.70%) changes, the FRSB rate changes with it at the next reset.
Interest payment: Paid semi-annually (January 1 and July 1). There is no cumulative/compounding option — interest is paid out, not reinvested.
Source: RBI Floating Rate Savings Bond, RBI
Key features
| Feature | Detail |
| Issuer | Government of India (via RBI) |
| Current rate | 8.05% p.a. (Jan–Jun 2026), reset every 6 months |
| Interest payment | Semi-annual (not cumulative) |
| Tenure / lock-in | 7 years |
| Minimum investment | ₹1,000 |
| Maximum investment | No upper limit |
| Safety | Sovereign (government-backed) |
| Taxation | Interest fully taxable at slab rate; TDS applicable |
Who can invest and how
Eligibility: Resident individuals (including joint holdings) and HUFs. NRIs are not eligible.
How to buy:
- Through the RBI Retail Direct portal (rbiretaildirect.org.in)
- Through authorised banks (SBI, HDFC, ICICI, Axis, and others)
The bonds are held in electronic form (Bond Ledger Account). No physical certificate is issued.
The safety advantage
FRSBs are issued by the Government of India, making them sovereign-backed — the highest level of safety for any rupee investment. Unlike a bank FD (insured only up to ₹5 lakh per bank under DICGC), there is no upper limit on the safety of an FRSB, because it is a direct obligation of the government.
For conservative investors who want to park a large sum with guaranteed returns and absolute safety, the FRSB offers both, with no ceiling on the amount.
The two main trade-offs
1. The 7-year lock-in (limited liquidity)
FRSBs have a 7-year tenure and are not freely tradeable. Premature withdrawal is allowed only for senior citizens, subject to age-based minimum lock-in periods (6 years for those aged 60–70, 5 years for 70–80, 4 years for 80+), with a penalty. For everyone else, the money is locked for the full 7 years.
This makes FRSBs unsuitable for funds you might need before 7 years. They are for money you are certain you will not touch.
2. Interest is fully taxable
The 8.05% interest is taxable at your income tax slab rate as "Income from Other Sources." TDS is deducted. For a 30% bracket taxpayer, the post-tax return is approximately 5.6% — and after inflation, the real return is modest (similar to the FD post-tax analysis).
This is the key point: the headline 8.05% is attractive, but for a high-bracket taxpayer, the post-tax return is comparable to other taxable instruments. The FRSB's edge is its safety and the guaranteed rate, not tax efficiency.
◇ Quick check: Calculate your post-tax FRSB return: 8.05% × (1 − your tax rate). At 30%, that is 5.6%. Compare this to a tax-free instrument like PPF (7.1% tax-free) or VPF (8.25% tax-free for salaried employees). For old-regime salaried employees, VPF's tax-free 8.25% beats the FRSB's taxable 8.05% on a post-tax basis.
FRSB vs other guaranteed instruments
| FRSB 2020 | Bank FD | PPF | VPF | |
| Rate | 8.05% (floating) | 6.5–7.5% | 7.1% | 8.25% |
| Taxation | Taxable | Taxable | Tax-free (EEE) | Tax-free (EEE) |
| Lock-in | 7 years | Flexible | 15 years | Until retirement |
| Safety | Sovereign | DICGC ₹5L | Sovereign | Sovereign |
| Upper limit | None | None | ₹1.5L/year | No cap (salaried) |
For a salaried employee in the old regime, VPF (8.25% tax-free) is generally superior to FRSB (8.05% taxable). The FRSB is most useful for: non-salaried individuals without VPF access, those wanting to deploy large lump sums with sovereign safety, and those who have exhausted tax-free options and want a guaranteed taxable return higher than FDs.
⚠ Common mistake: choosing FRSB over tax-free options without comparing post-tax returns
The 8.05% headline looks higher than PPF's 7.1%. But PPF is tax-free, while FRSB interest is taxed. For a 30% bracket taxpayer, FRSB's 8.05% becomes 5.6% post-tax — lower than PPF's 7.1% tax-free. Always compare post-tax returns, not headline rates, especially against EEE instruments like PPF and VPF.
Bottom line
- The RBI Floating Rate Savings Bond pays 8.05% (Jan–Jun 2026), reset every 6 months at NSC rate + 0.35%
- It is sovereign-backed (highest safety) with no upper investment limit and a ₹1,000 minimum
- Trade-offs: 7-year lock-in (limited liquidity) and fully taxable interest
- For 30% bracket taxpayers, post-tax return is approximately 5.6% — compare against tax-free PPF (7.1%) and VPF (8.25%)
- Best suited for non-salaried individuals, large lump sums needing sovereign safety, or those who have exhausted tax-free options
Frequently asked questions
Q: Can I exit the FRSB before 7 years if I need the money?
A: Generally no, except for senior citizens (60+) who can exit early subject to age-based minimum lock-ins and a penalty. For investors under 60, the bond is locked for the full 7 years. Do not invest money you might need before then.
Q: Is the 8.05% rate fixed for 7 years?
A: No. It is a floating rate, reset every six months at NSC rate + 0.35%. If the NSC rate falls, your FRSB rate falls at the next reset; if it rises, your rate rises. The 8.05% applies only for the current half-year (Jan–Jun 2026).
Q: Should I choose FRSB or a bank FD?
A: The FRSB typically offers a higher rate than most bank FDs and has sovereign safety with no upper limit (vs FD's ₹5 lakh DICGC insurance per bank). The downside is the 7-year lock-in vs an FD's flexibility. For money you are certain to lock away for 7 years, the FRSB's higher rate and safety are attractive. For money you may need sooner, an FD or liquid fund is more appropriate.
Q: Is FRSB better than VPF for a salaried employee?
A: For old-regime salaried employees, VPF (8.25% tax-free) is generally better than FRSB (8.05% taxable) on a post-tax basis. The FRSB is more relevant for non-salaried individuals or those who cannot use VPF, or for deploying large lump sums with sovereign safety.
Sources: RBI Floating Rate Savings Bond, RBI · FRSB interest rate, ClearTax · RBI Retail Direct
Last verified: June 2026. FRSB rate (8.05%) is for January–June 2026 and resets every six months. Verify at rbi.org.in.
Content on Ek Crore is for educational purposes only. Nothing here is financial advice. Always consult a SEBI-registered advisor, CA, or qualified professional before making investment or tax decisions.