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New Delhi, August 19, 2025 – For decades, Indians have trusted bank fixed deposits (FDs) as their go-to investment for secure returns. However, with the Reserve Bank of India’s Floating Rate Savings Bond (FRSB) offering an attractive 8.05% annual interest rate, investors are now comparing whether FDs or RBI Bonds are the smarter choice. Both instruments promise safety, but their features, liquidity, and taxation rules differ significantly.

What Is RBI Floating Rate Savings Bond (FRSB)?

The RBI’s Floating Rate Savings Bond is a government-backed investment instrument that comes with a 100% sovereign guarantee. This means there is zero risk of default, making it one of the safest options available in the market today.

Designed for conservative investors, these bonds provide stable income and carry the assurance of the Government of India. Unlike market-linked investments, they do not carry volatility risk.

Current Interest Rate on FRSB

As of now, the FRSB offers 8.05% annual interest, significantly higher than most traditional bank FDs. The interest rate is reset every six months and is directly linked to the National Savings Certificate (NSC) rate, with an additional 0.35% spread. This makes it flexible and often more rewarding than fixed-rate deposit schemes.

Lock-In Period and Liquidity

One of the biggest drawbacks of the RBI Bond is its seven-year lock-in period. This means investors cannot withdraw their funds before maturity. However, senior citizens enjoy partial flexibility depending on their age group:

• 60–70 years: early withdrawal allowed after 6 years

• 70–80 years: early withdrawal after 5 years

• 80+ years: early withdrawal after 4 years

That said, premature exit comes with certain penalties, so investors must plan carefully.

In contrast, bank FDs offer greater liquidity, as many banks allow premature withdrawals with minimal penalties. This makes FDs more convenient for people who may need quick access to funds.

Taxation Rules

The interest earned on RBI Bonds is fully taxable. It is added to the investor’s income and taxed as per the applicable slab. If annual interest income exceeds ₹10,000, tax is deducted at source (TDS).

Bank FDs are also taxable under the same rules. However, some investors prefer tax-saving FDs (with a five-year lock-in), which provide tax benefits under Section 80C of the Income Tax Act. RBI Bonds, on the other hand, do not qualify for 80C deductions.

FD vs FRSB: A Comparative Snapshot

• Interest Rate: Most large banks currently offer 6–7% interest on FDs. Some small finance banks go up to 9%, but they lack sovereign guarantee. RBI Bonds stand out at 8.05% with full government backing.

• Safety: FDs are safe up to ₹5 lakh per depositor under the Deposit Insurance scheme. In contrast, RBI Bonds have unlimited safety due to sovereign guarantee.

• Liquidity: FDs allow early withdrawal, while RBI Bonds lock in funds for seven years (except limited senior citizen benefits).

• Taxation: Both are fully taxable, but tax-saving FDs have an added advantage under 80C.

Who Should Choose What?

• RBI Bonds: Best suited for retired individuals, risk-averse investors, and those seeking assured returns without worrying about defaults. The higher fixed return and sovereign backing make them an ideal long-term investment.

• Bank FDs: A better option for investors who want flexibility and liquidity. People who may need access to funds before maturity, or those looking for tax benefits under 80C, may find FDs more convenient.

Conclusion

While bank FDs continue to remain a popular and reliable savings instrument, the RBI Floating Rate Savings Bond is emerging as a strong competitor by offering higher returns with government assurance.

For investors prioritizing safety and returns, FRSB clearly stands out. However, for those valuing liquidity and short-term flexibility, bank FDs still remain the preferred choice. Ultimately, the decision depends on individual financial goals, tax planning needs, and investment horizon.

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