7.15% RBI Floating Rate Savings Bonds, 2020 – Features and Interest Rates

RBI Floating Rate Savings Bonds, 2020 (Taxable) ReviewRBI Floating Rate Savings Bonds, 2020 – Features and Interest Rates


GOI has issued taxable bonds 7.75% during 2018-2020 and discontinued in May 2020. Ministry of Finance has announced now that they would be issuing Floating Rate Saving Bonds 2020 (Taxable) that would open for subscription from 1 July, 2020. While the current interest would be 7.15% per annum, such interest on these bonds would be reset every 6 months. One should assess its features and any negative factors before investing in such fixed income bonds. In this article, we would provide the features of RBI floating rate saving bonds 2020 (Taxable), current interest Rates  and who should invest in such bonds.

What are Government Saving Bonds?

Government of India has been issuing the saving bonds from 2003. In 2018, they have reduced the interest rates and started issuing a new series Floating Rate Savings Bonds 2028 that offered 7.75% interest rates. These are discontinued in May-2020. Ministry of finance has announced on 26 June, 2020 indicating that RBI would issue Floating Rate Savings Bonds, 2020 (taxable).

Features of Floating Rate Savings Bonds 2020

These floating rate bonds would open for subscription from 1 July, 2020.

These bonds are in the denomination of Rs 100. One can invest as low as Rs 1,000 and in multiples of Rs 100 thereof.

Since these are issued by Govt of India, these are 100% safe.

Floating rate savings bonds current interest rate is 7.15%. Such interest would be reset every 6 months.

These bonds have 7 years tenure.

These bonds are available only non cumulative interest rate option. Interest would be paid every 6 months. Hence, you cannot invest money for accumulation.

Interest received through these bonds are taxable as per income tax act, 1961.

Premature withdrawals allowed based on specific terms and conditions for Senior Citizens.

GOI notification on this savings bonds.

Who is eligible to invest in these bonds?

Any investor in an individual capacity or joint capacity and Hindu Undivided Family (HUF) can invest in these bonds. NRI’s cannot invest in these bonds.

What are various options available in Floating Rate Savings Bonds?

There is only one option available which is a non cumulative option.

In this option the interest is paid every 6 months on 1 July and 1 January. If you have purchased these bonds between these periods, interest would be paid proportionately from the date of issue to these cut off date. Post that you would get interest every 6 months.

What are premature withdrawal rules of Floating Rate Savings Bonds?

Premature withdrawal T&C should be same as earlier GOI bonds. However, we are yet to get complete info. We would update this section if there is any change later.

Senior Citizen investors can withdraw before 7 years based on below conditions.

1) 60-70 years of age – There is a lockin period of 6 years. Post that they can do premature withdrawal of these bonds.

2) 70-80 years of age – There is a lockin period of 5 years. Post that they can do premature withdrawal of these bonds.

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3) 80+ years of age – There is a lockin period of 4 years. Post that they can do premature withdrawal of these bonds.

One would get 50% lower interest that is receivable in the last 6 months as a penalty for premature withdrawal. E.g. if premature withdrawal is done after 4 years from the date of issue of these bonds, for 3.5 years the interest would be paid normal and for last 6 months, 50% of the interest would be reduced from the eligible amount.

What are minimum and maximum to invest in these bonds?

These bonds are issued in Rs 100 denomination. However, one need to invest a minimum of 10 bonds for Rs 1,000 and in multiples of Rs 100 thereon. There is no maximum limit of investment.

What are taxation rules of RBI Floating Rate Savings Bonds 2020?

Here are the taxation guidelines:

It offers only non cumulative interest payment option, interest would be paid every 6 months. TDS on floating rate savings bonds would be deducted before making payment of interest as per tax laws. However, one needs to add such interest to their total income and pay income tax based on their income tax slab.

Since there are no cumulative interest option and one would get their bond value only at maturity, wealth tax is not applicable.

Why to invest in Floating Rate Savings Bonds?

Here are some key reasons to invest in these bonds.

1) Investment in Floating Rate Savings Bonds 2020 is 100% safe and zero risk.

2) These saving bonds offer higher interest rates of 7.15% per annum currently, which are higher compared to any major bank FDs or post office FDs.

3) Senior Citizens who have surplus money beyond their emergency needs and looking for higher interest rates can invest in such schemes. See my note in a separate section about this.

4) Conservative investors who are looking for safety of their capital and stable income every 6 months can invest in such bonds.

5) There is no maximum limit for investment. You can invest as much as you can.

Why NOT to invest in Floating Rate Savings Bonds?

Now let us check few limitations/negative factors too.

1) These interest rates are NOT locked for 7 years. The interest rate is reset every 6 months and can change.

2) Investors other than senior citizens, cannot do premature withdrawal of these bonds. In case of emergency, these funds are not useful for them at all.

3) Senior Citizens too cannot do premature withdrawal except after 4-6 years of the tenure of the bonds that too is based on their age. Such restrictions make such schemes not that attractive. This section would be updated once we get complete info on premature withdrawals.

4) Though these are issued in demat account, these are not traded on stock exchanges. One cannot use them for emergency withdrawal by selling on stock exchanges.

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5) One cannot get loan on such bonds. Again liquidity before maturity is a major issue here.

6) Though these are issued for a 7 year tenure, one cannot claim any tax deductions u/s 80c which are generally available for any FD investment above 5 years.

7) Interest received half yearly is taxable in the hands of the investor based on their income tax slab.

Can Senior Citizens opt for this Floating Rate Savings Bonds?

While these bonds are good for senior citizens (7.15% current interest rates per annum and payable semi-annually), the major issue is about liquidity. The tenure of the bond is 7 years. If they need to withdraw they need to wait for a minimum of 4-6 years (depending on their age).  My advice would be that, they should first opt for Senior Citizen Saving Scheme (SCSS). Beyond this they check Post Office Monthly Income Plan. If they have surplus money beyond their emergency need and after exhausting the maximum limits in above options, they can look for Floating Rate Savings Bonds as another option.

How to invest in these Floating Rate Savings Bonds Online?

Once you have reviewed its pros and cons, you might think how to buy government bonds. These bonds are issued in demat form. You can approach your demat stock broker or approach any of the major banks (SBI, ICICI, HDFC etc.) for floating rate bond application form to invest in them. Once you invest and bonds are issued to you, these are credited to your demat account. At maturity or based on premature withdrawal of these bonds, the bond value would be credited to your bank account linked to your demat account.

Should you invest in RBI Floating Rate Savings Bonds, 2020?

If you are any of the below investor, you can invest in these bonds.

1) Senior Citizens indicated in the above section.

2) Conservator investors who are looking for fixed income of 7.15% per annum can invest in this scheme. They should also note that this interest rate would be reset every 6 months.

3) Conservator investors who want to invest in fixed income and their primary objective is the safety of their investment.

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Suresh KP

Floating Rate Savings Bonds, 2020 (Taxable) Review

Suresh KP

24 comments

  • CHANDRACHUR SAHOO

    IS RBI FLEXIBOND AVAILABLE THROUGH OUT THE YEAR

  • J. Kumar

    Present rate is 7.15 per cent. Suppose on reset of interest rate, will my existing rate get changed either downwards or upwards or I will continue to receive 7.15 per cent till maturity.

    • As indicated in the article, such interest would be reset every 6 months based on confirmation from Ministry of finance, Govt of India. The interest rate is not locked. You would get based on latest interest rate for that 6 months period only. If there is change, you would get interest with revised rate.

  • Ashok S

    Hi Suresh,
    Can we open two accounts say in SBI and CABARA Bank for 7.15 floating bonds, same PAN?

    (Because it is convenient to see interests coming in two different banks, or more.)

    • These bonds are issued by RBI and backed up by GOI. What is the reason for you to open two accounts? There is no maximum limit on these bond investments.

      • Ashok S

        Ok, thanks. But after opening a bla in one bank (serial 1.), i was told that for next investment, the whole procedure has to be redone. I am uncertain, earlier RBI 8% bonds one BLA (SBI) could take further investments (serial 1., 2., 3. …). Is it true for every investment, a new BLA has to be opened for 7.15 floating rate savings bond ? Or we can add new investments in same BLA.
        Please, expert advice.

        • Hello Ashok, What is the procedure you are talking about? If it is about submitting application form + kyc documents, then yes. Also I could not understand about “BLA” what you are referring to.

          • Ashok S

            Hi Suresh,
            Thanks, your social communication helped me.
            The bank person revised her understanding, we discussed.
            Only first time in opening floating rate savings bond KYC (PAN, AADHAAR, photo are good) is required and BLA (Bond Ledger Account) is opened. The investments then are added in serial numbers 1, 2, 3, … any number of times, an investor can give cheques and it will be put in the same demat BLA.
            No need to open several accounts.

            Thanks, God bless you.
            Ashok S (Senior Citizen)

          • Good to hear this Ashokji

  • K.R. Ramasubramanian

    Mr. K.P.Suresh,
    I am more than 80 yrs young. I have exhausted Sr. Citz. Sav. Sche. and PMVV scheme and also PPF. My interest in FDs are going down. Company Fds seems to be risky.
    I am too old to play with mutual funds. In order to get a reasonable return to compensate the cost of living, I am considering to close my maturing FDs of banks and companies and invest in GOI 7.15% variable interest bonds. Can I have your considered opinion on this approach ????? Please reply soon
    Thanks & Regards

    • Hello Ramasubramanian garu, Good to hear about you. 1) Investing in GOI floating rate bonds has a maturity period of 7 years. Are you okay with this. If yes, you can invest 2) Post office MIS scheme provides 6.6%, pls explore this option, however it has 5 years lock-in period. 3) Finally try this option too Can you pls explore bank FDs in RBL Bank, Indusind bank and Bandhan Bank which offers 7% to 7.75% interest rates. These are private banks. However even if you deposit a maximum of Rs 5 Lakhs each in such banks and assume something happens to bank (though regulated by RBI), these are covered under deposit insurance up to Rs 5 Lakhs. Don’t invest beyond Rs 5 Lakhs in such banks as it would be risky. You can open bank account online, FDs too can be opened and closed online, hence less hassles.

  • J N Jadeja

    In RBI Floating Rate Bonds 7.15%, Form 15G / H are not applicable, hence TDS is applicable.

    Will this TDS be for all Interest or when Interest crosses 40,000 / 50,000 (Senior Citizen)

    Suppose, one Invests 5 Lakhs and accordingly Annual Interest will be 35,750.

    Will there be TDS on this 35,750 or NOT as it is below 40,000.

    • Hello Jadeja

      RBI floating rate bonds does not specifically talk about Form 15G / H. However, you can give self declaration and send it to concerned customer care where you are maintaining demat account. This is still question mark whether it is accepted or not.

      Coming to threshold limit for Senior citizens it is Rs 50,000. Means if the TDS increases beyond Rs 50,000, TDS would be deducted on entire interest and NOT just beyond this limit.

      In below case if the interest is Rs 49,999, TDS is zero and if it is above Rs 50,000, necessary TDS would be deducted for entire interest amount.

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