The Reserve bank of India on 30th December through a press release announced that they are planning to hike the interest rates on floating rate saving bonds (2020) to 7.35% from the existing 7.15%. The hike in interest rate have came after the government hiked the interest rate on National Saving Certificate (NSC).

The RBI press release states that “In terms of para 13(ii) of government of India Notification F.No.4.(10)-B(W&M)/2020 dated 26 June 2020 on Floating Rate Savings Bonds,2020 (Taxable)-FSRB 2020 (T),the coupon?the interest rate of the bond would be reset half yearly, starting with 1 January 2021 and the coupon/interest rate will be set at a spread of (+) 35 bps over the prevailing National Saving Certificate (NSC) rate.

The rate of interest on NSC has been revised to 7.00% for the fourth quarter of FY 2022-23, in terms of GoI notification F.No1/4/2019-NS dated 30 December 2022.Accordingly ,the coupon rate on FRSB2020(T) for period 1 January 2023 has been reset at 7.35%(7%+0.35%).

The floating bond interest rate is correlated with the NSC rate.As stated in the scheme guidelines published on 26 June 2020, these floating rate bonds will earn 0.35% more than the National Saving Certificate. The National Saving Certificate will fetch a 7% from January to March quarter of financial year 2022-23 up from 6.8% it earned from the previous quarter after the small saving interest rate hike. The RBI floating rate bonds will be seeing the same interest rate hike as seen by the NSC.

The subscription for the RBI floating rate bonds were made available from 1 July 2020. The bond’s interest rate which was set at 7.15% for the first coupon payment due on 1 January 2021 ,was obtained by adding premium of 0.35% to the then current NSC rate, which was 6.80%. The interest rate of national saving certificate is reviewed by the government every quarter.

Features of RBI floating rate saving bonds 2020 (taxable)

• Resident individuals and Hindu undivided families (HUFs) can invest in them
• The interest amount is paid out on half yearly basis: on 1st January and 1st July every year
• The bonds have a fixed tenure of seven years
• The minimum investment in these bonds start at Rs1000 with no maximum limit