RBI Floating Rate Savings Bond offers 8.05% interest now, higher than big banks' FDs; who should invest?

economictimes.indiatimes.com:

RBI Floating Rate Savings Bond offers 8.1% interest now: How is it calculated? A whopping interest rate of 8.1 per cent may look attractive but do keep in mind that the interest of RBI Floating Rate Savings Bond (FRSB) is not fixed. It is linked to the interest rate of the National Savings Scheme (NSC), a small savings scheme backed by the Union government. Going by the formula, RBI Floating Rate Savings Bond will pay 0.35 per cent more than what the NSC offers.

The NSC interest rate for the July-September 2023 quarter is 7.7 per cent. The interest rate on these bonds is reset every six months and is due on January 1, 2024, next. If the interest rate on NSC goes up, then the RBI Floating Rate Savings Bond will offer a higher interest rate.

Similarly, if the interest rate of NSC goes down, the interest rate on RBI Floating Rate Savings Bond will also come down. The interest is payable semi-annually. The interest rate on these bonds will be paid on January 1 and July 1 every year.

When compared to the other fixed-income products such as five-year fixed deposits of popular banks such as State Bank of India (6.5 per cent interest rate), HDFC Bank (7 per cent interest rate), and ICICI Bank (7 per cent interest rate), RBI Floating Rate Savings Bond offers a significantly higher interest rate. It even offers higher interest rates than small savings instruments such as National Savings Certificate (NSC) (7.7 per cent for the September quarter), five year Post Office time deposit (7.5 per cent for the September quarter) and, five-year Post Office Monthly Income Scheme Account (MIS) (7.4 per cent for the September quarter). As these bonds are issued by the Reserve Bank of India (RBI), they enjoy sovereign guarantees.