Floating Rate Savings Bond (FRSB)
The Floating Rate Savings Bond (FRSB) 2020 (Taxable) is a non-tradeable, non-transferable savings instrument issued by the Government of India through RBI, offering a variable interest rate linked to the NSC (National Savings Certificate) interest rate plus a fixed spread of 0.35%, currently paying 8.05% per annum with semi-annual interest payments.
The FRSB was introduced by the Government of India in July 2020 to replace the erstwhile 7.75% Taxable Savings Bond, which was withdrawn after it became uncompetitive as market rates fell post-COVID. The key innovation of the FRSB structure is the floating rate mechanism: the coupon is not fixed for the life of the bond but resets every six months (on 1 January and 1 July) based on the prevailing NSC interest rate plus a 35 basis point spread. This design insulates investors from reinvestment risk in a falling-rate environment and automatically upgrades their yield when rates rise.
The bond is available for subscription by resident individuals (singly or jointly), HUFs, and trusts (excluding non-resident Indians). Minimum investment is Rs 1,000 with no maximum limit, making it accessible across a wide savings capacity range. The investment tenor is 7 years from the date of issue, and there is no option for premature redemption except for individual investors aged 60 and above, who can redeem after 6 years (60-70 age group), 5 years (70-80), or 4 years (80 and above), subject to a penalty of 50% of the last coupon payment.
Interest on the FRSB is paid semi-annually directly to the investor's bank account and is fully taxable as 'income from other sources' at the applicable slab rate. TDS is deducted at source if interest in a financial year exceeds Rs 10,000. There is no wealth tax or GST on the bonds. Importantly, there is no secondary market for FRSB — the bond cannot be traded, transferred (except in death or court order), or used as collateral for loans, which limits its use as a liquidity instrument.
The FRSB is held in a Bond Ledger Account (BLA) with authorised banks (public sector banks and select private banks like HDFC Bank and ICICI Bank) or through the RBI Retail Direct platform. Application and interest tracking are accessible online through bank portals, simplifying the investment process for individuals.
As of January 2025, when the NSC rate was maintained at 7.7%, the FRSB coupon stood at 8.05% (7.7% + 0.35%). This compared favourably to most bank fixed deposits of similar tenure, making FRSB particularly attractive for conservative investors in lower tax brackets. Senior citizens also had the SCSS (Senior Citizen Savings Scheme) as an alternative, which offered higher rates but had a Rs 30 lakh investment cap.