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I am a millennial centric (and now maybe Gen Z too) content creator who simplifies the world of personal finance, so that your hard earned money doesn’t end up hardly working for you. After working in this field for over 7 years, my priority remains the same-to make personal finance less boring and more jargon free through my unbiased and well-researched content!
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At a time when RBI’s three back-to-back repo rate cuts have been causing a continuous decline in FD rates, the Finance Ministry, in a surprise move, has kept the interest rates on PPF, NSC and other small savings schemes unchanged. Despite industry-wide expectations of a rate drop, the Finance Ministry announced last week that it had made no change in the interest rates of small savings schemes for the ongoing quarter of July-September 2025.
This decision also means that the interest rate on RBI’s popular floating rate savings bond has avoided a downfall, especially at a time when the ‘people favorite’ FD’s rates are going south. So how much returns is the RBI floating rate offering currently? And should you invest in it? Let us explain all that to you!
As their name suggests, a floating-rate bond is a bond which offers a variable coupon payment, implying that the interest rate varies periodically and gets adjusted based on the benchmark rate, which in this case is NSC (National Savings Certificate).
The Reserve Bank of India (RBI) issues the FRSB (Floating-Rate Savings Bond), with the most recent one being the ones issued in the year 2020, known as RBI Floating Rate Savings Bond (FRSBs), 2020.
The interest rate on floating rate bonds is linked to the prevailing rate of the NSC, plus a fixed spread of 0.35%. So, in short, the RBI floating rate bond’s interest rate becomes NSC’s interest rate + 0.35%. As far as tenure is concerned, these bonds have a seven year tenure, but the redemption and lock-in period differs for varying age brackets.
So, in short, premature withdrawal is only allowed for senior citizens, whereas those aged below 60 years need to wait for the completion of the entire tenure of 7 years (from the date of bond issue) to redeem their bond investment.
Note that NRIs (Non-Resident Indians) are not allowed to invest in these RBI bonds. Joint Holdings by individuals, as well as investment by HUFs (Hindu Undivided Families) is allowed. The minimum investment amount is just Rs 1,000, with no upper ceiling on the maximum amount you can invest.
As we mentioned earlier in this article, the RBI’s floating rate savings bond’s interest rate is pegged to the NSC’s interest rate, plus a fixed spread of 0.35%. Given that NSC’s current interest rate is 7.70% p.a, the RBI Floating Rate Savings Bond’s interest rate comes out to be 8.05% p.a. (7.70% + 0.35%).
It’s also noteworthy that the interest payment as well as interest resetting on these bonds is done semi-annually, on January 1st and July 1st. So, this 8.05% interest rate is applicable for the next six months, until the next revision date of 1st January 2026 arrives.
With the RBI floating rate savings bonds offering an interest rate of 8.05% for the July-December 2025 period, it’s a no-brainer that this is an attractive rate of return when compared to the falling FD rates of banks and NBFCs this year. And mind you, we are just half-way through this year, and the RBI’s repo rate as well as banks and NBFCs’ FD rates are expected to continue to fall in coming months.
On the other hand, the floating rate bond’s 8.05% rate will not face any change for the next six months. Now let us compare the FD rates of major banks and NBFCs with the RBI floating rate savings bond.
| Name of financial institution | Current FD rates | Interest rate on RBI’s floating rate bond |
| State Bank of India | 3.05%-6.45% | 8.05% |
| HDFC Bank | 2.75%-6.60% | 8.05% |
| ICICI Bank | 2.75%-6.60% | 8.05% |
| Axis Bank | 3.00%-6.60% | 8.05% |
| Suryoday Small Finance Bank | 4.00%-8.40% | 8.05% |
| AU Small Finance Bank | 3.50%-7.10% | 8.05% |
| Ujjivan Small Finance Bank | 3.50%-7.75% | 8.05% |
| Jana Small Finance Bank | 3.00%-8.20% | 8.05% |
| Mahindra Finance | 6.75%-7.00% | 8.05% |
| Bajaj Finserv | 6.60%-6.95% | 8.05% |
Source: FD rates taken from respective banks/NBFC’s websites, as on 9th July 2025.
Now comes the big question-should you invest in RBI’s floating rate saving bond offering a lucrative interest rate of 8.05%? Well, its pretty clear that its returns are higher than what most banks and NBFCs are offering at present, right? Moreover, FD rates are expected to continue to fall in the coming months as well, so the gap between these FD rates and RBI’s floating rate savings bond’s rates can further widen, provided the latter does not suffer from a significant fall in its January 2026 revision of interest rate.
But, but, but, do not forget to factor in the long lock-in period of 7 years (for individuals aged below 60). Also, the taxable interest component can reduce the effective returns, especially for investors belonging to higher income tax slabs. Moreover, these RBI floating rate savings bonds are neither tradable nor transferable. So, unlike other bonds, these cannot be sold in the secondary market. This lack of liquidity can become a disadvantage for those who prefer the option of exiting their investment early.
However, on the other hand, for those who are risk averse and planning for long-term financial goals, these bonds can turn out to be a smart addition to their portfolio.
If you are interested in investing in RBI Floating Rate Savings Bonds, 2020, you can either do so through the RBI Retail Direct Platform or through the authorized banks’ websites/branches.
We had written a detailed blog on RBI’s retail direct platform a few months ago where we took an example of RBI’s floating rate savings bond 2020 for checking out the steps required to invest through the platform. Here’s the article link which you can check out!
If you are looking for higher returns than FDs and are aiming to invest in a fixed income instrument only, you can consider going for corporate bonds. But why? Well, while its true that the RBI floating rate savings bonds offer higher returns than FDs in the present scenario, corporate bonds offer even higher returns, without making you take too much risk when seeking better returns than FDs for your portfolio.
Let us look at the big gap between FD rates & corporate bond yields. As per a detailed analysis by Grip Invest, which included RBI’s data for FD rates, you can get a fair idea regarding how big the gap is between the FD rates and the ‘A’ rated corporate bond yields.
So, as you can see, there’s a significant gap between the average returns from bonds and FDs, which makes a strong case for fixed-income investors to consider putting their hard-earned money into corporate bonds instead of FDs, to earn higher returns. The leading OBPPs in India, including Grip Invest, Wint Wealth, Aspero, TheFixedIncome, etc are currently offering around 10%-14% returns on corporate bonds.
Also, besides the higher return potential, corporate bonds offer stability and diversification to your investment portfolio. But its important to remember that while corporate bonds offer higher returns than FDs, they involve relatively higher risk too than the traditional fixed deposits. On an overall level, corporate bonds act like a mid-way between the ‘low risk, low return’ FDs and ‘high risk, high return’ equities, for your portfolio.
To understand all this in detail, you can read our explainer on corporate bonds, here:
Please note that this is an opinion blog and not an official research or investment advice. This blog aims is for educational purpose only, and neither encourages nor discourages you from investing in any particular bond, platforms or asset class.
