Floating Rate Savings Bonds, 2020 (Taxable) – FRSB 2020 (T)

After withdrawing the popular 7.75% (taxable) bonds on 28 May, the government has announced the launch of a new series of bonds with an interest rate of 7.15%. However, the rate will be reset every six months as per prevailing interest rates. The bonds will have a tenor of seven years and their interest will be taxed at your slab rate. They can be purchased from nationalized banks and specified private sector banks. Only resident Indians or Hindu Undivided Families (HUFs) can subscribe to the bonds.

The notes have a minimum subscription of ₹1,000 and you can subscribe in multiples of₹1,000. There is no maximum limit for investment in them. The interest rate on the bonds will be paid on 1 January and 1 July every year. The first interest rate payment will be made on 1 January 2021 at 7.15%. You can also reinvest the interest to buy fresh bonds in the multiples of₹1,000 to compound your money. However, these bonds will have a fresh tenor of seven years.

The bonds cannot be traded or used as collateral for loans. However, they can be inherited by the legal heirs of the holder. Premature redemption will be available for senior citizens in certain cases.

A floating rate can adjust higher when overall rates in the economy go up. This can help bondholders in times of high inflation when interest rates are generally hiked. However, when interest rates head lower, the rates on the bonds will also be reduced.

If you are a senior citizen, you can also invest in Pradhan Mantri Vaya Vandana Yojana (PMVVY) and Senior Citizens Savings Scheme (SCSS). Among these alternatives, only SSY, SCSS and PMVVY currently offer higher rates than the proposed bonds at 7.6% and 7.4% and 7.4%, respectively. However, SSY is only available for the parents of a girl child below the age of 10 and has a maximum deposit limit of ₹1.5 lakh per year. Similarly, SCSS and PMVVY have a maximum limit of ₹15 lakh per person and are only open to senior citizens.