The interest rate on RBI floating rate savings bonds has a spread of 0.35% over and above the interest rate on the NSC. Any change in the NSC interest rate will be reflected in the interest rate offered on RBI savings bonds. Thus, by adding a spread of 0.35% to the current NSC interest rate, the RBI savings bond interest rate comes to 8.05%.
The interest rate on RBI floating rate bonds was last revised on January 1, 2023, as the NSC interest rate was hiked for the January – March 2023 quarter.
The interest rate on RBI savings bonds is reviewed half yearly. The next interest rate review is due on June 30, 2023. If the NSC interest rate remains the same on June 30, 2023, then the interest rate on the RBI savings bond will be 8.05%.
Do note that NSC is a small savings scheme where the interest rate is reviewed by the government every quarter. The next review is due on June 30, 2023. Thus, if the interest rate on NSC is further revised by the government, then the interest rate on RBI savings bonds will also change accordingly.
How interest rate is arrived at for floating rate bonds
As the subscription of RBI’s floating rate bonds were made available from July 1, 2020, the interest rate for the first coupon payment of the bond, due on January 1, 2021, was fixed at 7.15%. It was arrived at by adding a premium of 0.35% to the prevailing NSC rate, which was 6.80% as on July 1, 2020 and kept unchanged since then.
The interest rate on NSC is reviewed by the government every quarter. The government arrives at the NSC interest rate using the formula suggested by the Shyamala Gopinath Committee. As per the formula suggested by the Committee, the interest rate on different schemes should be 0.25-1% higher than the yields of the government bonds of similar maturity.
Features of RBI’s Floating Rate Savings Bonds, 2020 (Taxable)
RBI launched the floating rate bonds in lieu of the earlier withdrawn 7.75% taxable bonds. As per the scheme notification, the features of the newly launched bonds are as follows:
a) Resident individuals and Hindu Undivided Families (HUFs) can invest in these bonds.
b) The minimum investment in these bonds start at Rs 1,000 with no limit on the maximum amount.
c) These bonds do not offer to pay interest on a cumulative basis (at the end of the maturity of the bonds). The interest amount is paid out half-yearly on January 1 and July 1 every year.
d) The interest rate on these bonds is reset every six months, i.e., on January 1 and July 1 every year.
e) The bonds have a fixed tenure of seven years. Premature withdrawals are allowed for individual investors whose age is 60 years and above, subject to minimum lock-in period depending on the age of the bond holder.