Rates of RBI Floating Savings Bonds offering 8.05% to be reviewed soon; will it change from January 1, 2024?
How the interest rate of RBI Floating Rate Savings Bonds 2020 (Taxable) is calculated
The interest rate of RBI Floating Rate Savings Bonds 2020 (Taxable) is not fixed. It is linked to the interest rate of the National Savings Scheme (NSC), a small savings scheme offered by the Union government. RBI Floating Rate Savings Bonds will pay 0.35% higher than what NSC offers.
The interest rate of NSC is reviewed every quarter along with other small savings schemes. If the interest rate on NSC goes up, then the RBI Floating Rate Savings Bonds 2020 (Taxable) will offer a higher interest rate accordingly. Similarly, if the interest rate of NSC goes down, the interest rate on the RBI Floating Rate Savings Bonds will also come down.
Now, NSC offers an interest rate of 7.7% for the October-December quarter of 2023. Going by the formula, the interest rate of RBI Floating Rate Savings Bonds 2020 (Taxable) will continue to offer 8.05% (7.70% +0.35%) from January 1, 2024.
As the interest rate of NSC has not gone down during the December quarter, the interest rate of RBI Floating Rate Savings Bonds 2020 (Taxable) is likely to remain unchanged during its next reset date Jan 01, 2024.
A return of 8.05% is quite attractive An interest rate of 8.05% appears attractive when compared to other fixed-income instruments with a similar nature such as fixed deposits and other post office schemes. For instance, a five-year fixed deposit offered by the State Bank of India (SBI) — the biggest public sector bank — fetches an interest rate of 6.5%. Prominent private sector banks such as HDFC Bank, ICICI Bank, and Axis Bank offer an interest rate of 7% on fixed deposits maturing in five years.
