Should FD investors switch to floating rate savings bonds as they offer higher interest rates than SBI, ICICI, HDFC Bank
Bank of India (SBI), HDFC, ICICI, and others are not quite enticing. The RBI Floating Rate Savings Bonds 2020 (Taxable) is set to offer an interest rate of 8.05%, a significant increase from its current 7.35% rate. This bond's interest rate is linked to the National Savings Certificate (NSC), which recently saw an increase to 7.7%.
According to experts, this is a better rate than several fixed deposit options. FRSBs are interest-bearing, non-tradeable bonds, issued by the central government, which come with a lock-in period of 7 years. The interest rate of these bonds is not fixed like usual bonds, but is floating in nature.
The FRS bonds 2020 were launched on July 1st, 2020 “These bonds offer an attractive option for fixed-income investors, especially in comparison to bank fixed deposits," Amit Gupta, MD, SAG Infotech The RBI Floating Rate Savings Bonds and NSC are both backed by the Indian government, ensuring the safety of invested funds. However, the RBI bonds have a longer lock-in period of seven years, with limited premature withdrawal options for specific age groups. The interest on these bonds is paid semi-annually, providing regular income for investors.
“There is no maximum investment limit for these bonds, and they can be purchased with a minimum subscription of ₹1,000. In contrast, tax-saving fixed deposits have a limit of ₹1.5 lakh," said Amit Gupta. Exciting news! Mint is now on WhatsApp Channels. Subscribe today by clicking the link and stay updated with the latest financial insights! Click here While the interest earned on these bonds is taxable, there is an income tax deduction of up to ₹1.5 lakh available for NSC and bank fixed deposits, making them eligible for Section 80C exemptions.
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