The Reserve Bank of India (RBI) has left the interest rates unchanged for its floating rate savings bonds at 8.05 per cent for the second half of the year following a revision on July 1, 2024. An RBI notification on Monday said the interest rate for the floating rate savings bonds for the next six months (July to December) of 2024 will be 8.05 per cent, the same as in the first half, (7.70 per cent + 0.35 per cent), payable on January 1, 2025. The FSRB interest rate is reviewed semi-annually and is set at 35 basis points (bps) higher than the National Savings Certificate (NSC) interest rates. Similar to NSC, FSRB bonds have a lock-in period of seven years.

Let’s delve deeper to understand the FSRB bonds.

Floating Rate Savings Bonds (FSRBs):

The government issued savings bonds for the first time in July 2020. Any resident Indian can buy these bonds individually or jointly. Parents can also buy them on behalf of their minor children. The minimum investments in these bonds is Rs 1,000; however, there is no upper limit.

A Hindu Undivided Family (HUF) can also invest in the floating rate savings bonds.

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Lock-In, Premature Withdrawals For Seniors:

Though these bonds have a seven-year lock-in, senior citizens can withdraw them prematurely after a minimum lock-in period from the date of the bond issue based on their age.

· Six years for investors in the age group of 60-70 years

· Five years for investors of 70-80 years

· Four years for investors of 80 and above

For premature withdrawals, there is a 50 per cent penalty on interest, recovered from the interest payable for the last six months of the holding period.

Taxation:

FRSB investments do not offer tax benefits. The interest amount is taxed as per the tax slab. The interest is paid after deducting the tax deducted at source (TDS). TDS will not apply to investors declaring in an appropriate form that they are exempt from it, as per the Income-tax Act, 1961.

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Should Seniors Consider Investing In FRSBs?

The FRSB coupon rate is determined every six months. As the name suggests, FRSBs are not fixed-rate bonds. These bonds can generate higher returns in a rising interest rate scenario and vice versa. Senior citizens looking only for higher returns from fixed-income instruments can

explore other options. For instance, the senior citizen savings scheme (SCSS) offers an annual interest rate of 8.2 per cent, fixed for five years. Like FRSB, SCSS interest income is also subject to TDS. FRSB has no ceiling on the maximum amount of investments as in SCSS, so if you have surplus cash, in that case, FRSBs can be an option.