How is the FRSB interest rate decided?

The rate equals the prevailing National Savings Certificate (NSC) rate plus a fixed 0.35% spread, and it resets every six months on 1 January and 1 July. With NSC at 7.7%, the FRSB pays 8.05% for January–June 2026. The 0.35% spread is permanent, so an FRSB always pays 0.35% more than NSC — but the rate can fall as well as rise.

Can I exit an FRSB before 7 years?

For investors under 60, there is a full 7-year lock-in with no premature withdrawal except on death or court order. Investors 60 and above may exit after a reduced lock-in — 6 years for ages 60–70, 5 years for 70–80, and 4 years for 80+ — with a penalty of 50% of the last six months' interest. FRSBs are non-tradable, so there is no secondary market.

Is an FRSB better than a bank FD?

At 8.05%, the FRSB currently pays well above 7-year bank FDs (6.25–7.10% general, up to 7.85% for seniors). But the FRSB rate floats, so it can fall if NSC drops, while a fixed FD locks its rate. FRSBs are also far less liquid. The right choice depends on your view of rates, need for certainty, and liquidity — floating shifts risk from rate-lock to income uncertainty.

Interest is fully taxable at your income tax slab rate every year, with no Section 80C benefit and no price/capital-gains angle since the bond is non-tradable. TDS applies if annual interest exceeds ₹10,000 for all investors, including seniors — unlike bank FDs' ₹50,000 senior threshold. In the 30% bracket, 8.05% becomes about 5.64% post-tax, where tax-free PPF at 7.1% is superior.

Who can invest in FRSBs and where do I buy them?

Resident Indian individuals, HUFs and minors (via guardian) can invest; NRIs, trusts and companies cannot. Minimum is ₹1,000 with no upper limit. FRSBs are sold only through authorised banks — SBI, most nationalised banks, and select private banks (HDFC, ICICI, Axis, Kotak) — not at post offices. Interest is credited semi-annually to your linked bank account.

Conceptual · Article 2.1.4.4

Floating Rate Savings Bonds.

8.05% Today. Sovereign-Safe, Rate-Reset, Locked for Seven Years.

Published as on 22 July 2026

A Floating Rate Savings Bond is a government savings instrument issued by the RBI on behalf of the Government of India, whose interest rate does not stay fixed — it resets every six months at the National Savings Certificate rate plus a permanent 0.35% spread. Right now that means 8.05% (Jan–Jun 2026: NSC 7.7% + 0.35%), comfortably above most 7-year bank FDs. The principal never moves, so there is no price risk; but the bond is non-tradable and locked for seven years (reduced to 4–6 years only for those 60 and above). Interest is fully taxable at your slab rate with no Section 80C benefit — so the headline rate and the take-home rate are very different numbers.

8.05%

Rate (Jan–Jun 2026)

NSC + 0.35%

Reset Formula

7 years

Lock-in

Slab · No 80C

Fully Taxable

Executive Summary · Page 2

Executive Summary · 6 Findings

An FRSB is a sovereign savings bond with a rate that moves — resetting every six months to the NSC rate plus 0.35%. It answers a specific question: how do I earn a government-safe rate that can climb if rates rise, without being trapped at yesterday's low coupon? The catch most investors miss: "floating" means adjustable, not rising — and the seven-year lock-in, plus full taxation, can quietly turn an 8% headline into a thin real return.

Covers what an FRSB is and why it was created, exactly how the six-monthly reset works, the seven-year lock-in and the reduced-tenure exit for seniors, the unusual risk profile (zero price risk, high liquidity risk, income risk if rates fall), full slab-rate taxation with a ₹10,000 TDS threshold for all, the post-tax reality versus PPF/NSC/SCSS, how and where to buy, and seven questions Indian investors ask.

Key Findings

A sovereign savings bond with a moving rate.

Issued by the RBI for the Government of India, the FRSB pays interest that resets every six months rather than staying fixed. Buy a bank FD at 7% and you are locked there; the FRSB instead tracks market conditions. Its principal never changes — only the rate does, recalculated each 1 January and 1 July.

The formula: NSC + 0.35%, forever.

Your rate is the prevailing National Savings Certificate rate plus a permanent 0.35% spread. With NSC at 7.7%, the FRSB pays 8.05% for Jan–Jun 2026. Because the spread never changes, an FRSB always pays 0.35% more than NSC — but if NSC falls to 7%, your rate drops to 7.35% at the next reset.

Seven-year lock-in — the defining constraint.

FRSBs are non-tradable with no secondary market. Investors under 60 are locked for the full seven years (exit only on death or court order). Only seniors get an early door: 6-year lock-in at 60–70, 5-year at 70–80, 4-year at 80+, with a penalty of 50% of the last coupon. This is among the least liquid government options.

Zero price risk, but real income risk.

Because the bond is non-tradable, its value never fluctuates — no duration risk at all, unlike a G-Sec. The trade-off is income risk: in a falling-rate cycle your semi-annual payout shrinks. After the RBI's 2025 cuts we are in exactly such a cycle, so the 8.05% you see today may not be the 8.05% you earn throughout.

Fully taxable — headline ≠ take-home.

Interest is taxed at your slab rate every year, with no Section 80C benefit. TDS kicks in above just ₹10,000 of annual interest — for everyone, including seniors (unlike an FD's ₹50,000 senior threshold). In the 30% bracket, 8.05% becomes ~5.64% post-tax, where tax-free PPF at 7.1% quietly wins.

Best in low tax brackets, as a portfolio slice.

The FRSB shines for 0–10% bracket investors, the retired with low income, and anyone who has exhausted 80C and wants extra sovereign exposure. Cap it at 15–25% of a portfolio — over-allocating to a seven-year illiquid bond, however safe, is a real risk if life changes. It is debt, not a growth asset.

At A Glance

Metric	Value	Detail
Issuer	Govt of India	Via the RBI
Rate (now)	8.05%	NSC + 0.35%
Reset	Every 6 months	1 Jan / 1 Jul
Price Risk	Zero	Non-tradable
Liquidity Risk	High	7-yr lock-in
Minimum	₹1,000	No upper limit
Tax	Slab, no 80C	TDS above ₹10,000
Best For	0–10% brackets	7+ yr surplus

Exhibit 01: Post-Tax Reality of 8.05%

Bracket	Post-Tax Rate	Real (vs 5%)
0%	8.05%	+3.05%
10%	7.24%	+2.24%
20%	6.44%	+1.44%
30%	5.64%	+0.64%

Illustrative, at the current 8.05% rate and ~5% inflation. In the 30% bracket the real return is barely positive — and would turn negative if inflation rose to 6–7%. For high-bracket investors, tax-free PPF at 7.1% is more efficient.

The Opening · Page 3

The Opening

The Floating Rate Savings Bond was created in 2020 to solve a specific frustration: lock money for seven years at a fixed rate, watch market rates climb, and you are stuck at yesterday's coupon. The FRSB removes that trap by letting the rate move — resetting every six months to the NSC rate plus a fixed 0.35%. Today that is 8.05%. Invest ₹5,00,000 and the first six months earn ₹20,125; at the next reset, the rate follows NSC up or down. The short version: a government bond whose rate breathes with the market.

"Floating means adjustable, not rising. The same mechanism that lifts your rate when NSC climbs will cut it when NSC falls. An FRSB does not promise a higher return than a fixed bond — it simply moves the risk from 'locked at a low rate' to 'income I cannot predict.'"
The Floating-Rate Bargain

The mechanics. Because the 0.35% spread is permanent, an FRSB will always pay 0.35% more than NSC — but that is a relationship, not a guarantee of beating every alternative. If you could lock a 7-year FD at 7% today and FRSB rates drift to 6.8% over the years, the fixed FD would have won. The FRSB's true edge is zero price risk: its principal never moves, so unlike a G-Sec it cannot lose mark-to-market value.

The February 2026 context. After the RBI's 2025 cuts, we are in a falling-rate environment. NSC has held at 7.7%, keeping the FRSB at 8.05% — attractive against 7-year bank FDs of 6.25–7.10%. But if small-savings rates decline in coming quarters, so will your reset, while the headline that drew you in stays frozen in memory.

The Honest Boundary: An FRSB is NOT an emergency fund — the seven-year lock-in is absolute for under-60s. It is NOT a guaranteed rising income — the rate falls in a cutting cycle. It is NOT tax-advantaged — no 80C, fully taxable, ₹10,000 TDS threshold. It IS a sovereign-safe, price-stable home for long-horizon surplus, at its best in a low tax bracket.

Structure

Part I

What an FRSB Is, Why It Exists & How the Reset Works

Part II

The Seven-Year Lock-in & the Unusual Risk Profile

Part III

Taxation, vs PPF / NSC / SCSS / FD & How to Buy

Part IV

The Verdict: Right Bond, Right Bracket, Right Horizon

Use If

✓ Money can lock for 7+ years

✓ You are in a 0–10% tax bracket

✓ Emergency fund sits elsewhere

✓ You want a rate that can rise

Do NOT Use If

✕ You might need the money sooner

✕ You are in the 30% bracket

✕ You need known, fixed returns

✕ You want monthly income

Part I

What an FRSB Is, Why It Exists, and How the Six-Monthly Reset Works

The government savings bond built in 2020 to escape the fixed-rate trap; the NSC-plus-0.35% formula that recalculates every January and July; and why "floating" cuts both ways — the same reset that lifts income in a rising cycle shrinks it in a falling one.

Part I · Page 4

The Reset Formula

Rate = NSC + 0.35%, Reset Every 6 Months

The NSC rate is set quarterly by the Government of India; the FRSB resets on 1 January and 1 July to that rate plus a permanent 0.35% spread. NSC 7.7% → FRSB 8.05% (Jan–Jun 2026). Interest is paid semi-annually to your bank account — no compounding, no reinvestment.

A Reset Timeline (₹10 lakh)

Period	NSC	FRSB
H2 2026	7.7%	8.05%
H1 2027	7.5%	7.85%
H2 2027	7.9%	8.25%

Principal stays ₹10,00,000 throughout; only the rate moves. Your total return is unknown at the outset — the defining difference from a fixed deposit.

Why It Was Created

Escaping the Fixed-Rate Trap (2020)

Lock money for seven years at a fixed rate and, if the market climbs, you lose out. The FRSB lets the rate move with small-savings rates, so you are protected if rates rise, the government pays market-linked rates rather than an old low one, and you avoid the break-and-reinvest hassle.

What Moves the NSC Rate

The government reviews NSC quarterly against G-Sec yields of similar maturity and the broader rate environment. So when the RBI raises rates, G-Sec yields rise, NSC may increase, and your FRSB resets higher. When the RBI cuts — as through 2025 — the chain runs the other way, and your income eases down.

The structural insight: the permanent 0.35% spread guarantees only a relationship to NSC, never an outcome. In February 2026's falling-rate environment, the honest expectation is that today's 8.05% is a ceiling for a while, not a floor — the same flexibility that would reward you in a rising cycle works against you here.

Part II

The Seven-Year Lock-in and an Unusual Risk Profile

Why the FRSB carries zero price risk yet the highest liquidity risk of the government savings family; the reduced-tenure exit that only seniors get; and why income risk, not capital risk, is the thing to watch in a falling-rate cycle.

Part II · Page 6

The Lock-in Reality

Under 60 — Fully Locked for 7 Years

No premature withdrawal except on death or court order. Not for a medical emergency, not for a child's education, not for a job loss. FRSBs are non-tradable — there is no secondary market to sell into.

Seniors — A Reduced Door

Age at Investment	Min Lock-in	Penalty
60–70	6 years	50% of last coupon
70–80	5 years	50% of last coupon
80+	4 years	50% of last coupon

The penalty is modest — half of one six-month coupon, under 0.2% of principal in most cases — but the tenure floor is the real constraint. FRSBs rank among the least liquid government savings options.

The Risk Profile

Risk	Exposure
Credit	Virtually zero (sovereign)
Price / market	Zero (non-tradable)
Income (rate reset)	Moderate
Inflation	Low–moderate
Liquidity	High (7-yr lock-in)

The Biggest Risk: Falling Rates

Invest ₹20 lakh at 8.05% and, if NSC drifts to 7.3% and back over seven years, your average may land near 7.88% — still decent, but not the 8.05% × 7 you may have mentally banked. Floating shifts risk from rate-lock to income uncertainty; it does not remove risk.

The honest truth: the FRSB inverts the usual bond bargain. A G-Sec gives you tradability and capital gains potential but real price risk; the FRSB gives you a rock-steady principal and no price risk, but you pay for it with a hard lock-in and an income that can slide. Neither is safer overall — they simply carry different risks. Know which one you are actually taking.

Part III

Taxation, the Post-Tax Comparison, and How to Buy

Why full slab-rate taxation with a ₹10,000 TDS threshold for everyone turns 8.05% into ~5.64% for the 30% bracket; how that stacks up against tax-free PPF and the other government schemes; and the bank-only route to buying — post offices do not sell FRSBs.

Part III · Page 8

Taxation (FY 2025-26)

Fully Taxable, No 80C

Interest is taxed at your slab rate every year. No Section 80C on the investment; principal returns tax-free (already-taxed money). TDS above ₹10,000 of annual interest for all investors — including seniors, unlike an FD's ₹50,000 threshold. File Form 15G/15H if your income is below the taxable limit.

vs Other Safe Options (30% bracket)

Instrument	Pre-Tax	Post-Tax
PPF	7.1%	7.1% (tax-free)
FRSB	8.05%	5.64%
SCSS (60+)	8.2%	~5.74%
NSC	7.7%	~5.39%
7-yr Bank FD	6.5–7.1%	4.55–4.97%

Indicative, February 2026. For 30% bracket investors, tax-free PPF at 7.1% beats FRSB's 5.64% post-tax despite the lower headline — a decisive point many investors miss.

How & Where to Buy

Banks Only — Not Post Offices

FRSBs are sold exclusively through authorised banks: SBI and most nationalised banks, plus select private banks (HDFC, ICICI, Axis, Kotak). Not all branches participate — check ahead. Apply online via net banking or offline with PAN, Aadhaar and a cancelled cheque; the bond is issued electronically in a Bond Ledger Account.

Feature	Detail
Eligibility	Residents, HUFs, minors
Not eligible	NRIs, trusts, companies
Minimum	₹1,000 (no max)
Interest paid	Semi-annual (1 Jan / 1 Jul)
Nomination	Mandatory

When FRSB Makes Tax Sense

The sweet spot: FRSBs work best if you are in the 0–5% bracket (you keep most of the 8.05%), between jobs or retired with low income, or have already exhausted Section 80C via EPF/ELSS/home loan and want additional sovereign exposure. If you are in the 30% bracket and value tax efficiency, PPF or tax-free bonds usually serve you better.

Part IV

The Verdict

Right bond, right bracket, right horizon.

Part IV: The Verdict · Page 10

30-Second Summary

A Floating Rate Savings Bond is a sovereign-safe savings instrument whose rate resets every six months to the NSC rate plus a fixed 0.35% — currently 8.05%, well above most 7-year bank FDs. Its principal never moves, so there is zero price risk; but it is non-tradable and locked for seven years (4–6 years only for those 60+). "Floating" means adjustable both ways: in February 2026's falling-rate cycle, the rate is more likely to ease than climb.

The headline and the take-home diverge sharply. Interest is fully taxable at slab rate with no 80C and a ₹10,000 TDS threshold for all, so 8.05% becomes ~5.64% for a 30% bracket investor — where tax-free PPF at 7.1% wins outright. FRSBs suit 0–10% bracket investors, the retired with low income, and those who have maxed 80C and want extra sovereign exposure — capped at 15–25% of a portfolio, using only surplus you can lock for the full term.

"The FRSB asks you to trade liquidity for stability and to accept an income you cannot forecast. That is a fair bargain — for the right person. The mistake is the investor who sees '8.05%', locks in ₹20 lakh, and discovers two truths too late: the rate can fall, and after 30% tax it was never 8.05% to begin with."
The Final Orientation

The Bottom Line: Use the FRSB for long-horizon, sovereign-safe surplus — never for money you might need inside seven years. Judge it on the post-tax rate in your bracket, not the headline: for low brackets it is genuinely attractive; for the 30% bracket, PPF at 7.1% tax-free usually beats it. Prize the zero price risk, respect the hard lock-in, and expect income to ease in a falling-rate cycle. Buy through an authorised bank (not a post office), nominate a beneficiary, and keep the allocation to 15–25% of your debt. Verify the current NSC-linked reset rate before you commit.

ADWIZR · July 2026

Decision Rules

Use Correctly As

✓ Long-horizon sovereign surplus

✓ A low-tax-bracket income holding

✓ Price-risk-free debt diversifier

✓ 15–25% of a debt allocation

Misuse Destroys Value

✕ Emergency / sub-7-year money

✕ A 30%-bracket tax play

✕ Expecting guaranteed rising income

✕ Over-allocating on "safety"

Three Misconceptions

What Investors Get Wrong

(1) "Floating means my income keeps rising." No — it follows NSC, and falls when NSC falls. (2) "I can sell if I need to." Non-tradable; only seniors exit early, with a penalty. (3) "8.05% is what I earn." After 30% tax it is ~5.64%, below tax-free PPF.

The Portfolio Slot

A Slice, Not the Whole

For a ₹20 lakh conservative portfolio: ₹3–4L liquid (emergency), ₹5–6L laddered FDs, ₹3–5L FRSB or similar 7-year sovereign savings, ₹7–8L equity. FRSB is 15–25% — never the entire savings.

8.05%

Current rate

NSC + 0.35%

Zero

Price risk

Non-tradable

7 yr

Lock-in

4–6 yr for 60+

Investor FAQ

Questions Indian Investors Ask

Seven questions, answered directly.

Investor FAQ · Page 12

Frequently Asked Questions

Q1 Can I sell or transfer my FRSB to someone else?

No. FRSBs are non-transferable and non-tradable — there is no secondary market and you cannot sell to another investor. The only transfer is to a nominee or legal heir on the bondholder's death. This is why the seven-year lock-in is such a hard constraint: unlike a listed bond, there is no exit door except maturity (or the reduced-tenure exit for seniors).

Q2 Will my FRSB rate rise if I invested at a lower rate earlier?

Yes — that is the point of a floating rate. If you bought when NSC implied, say, 7.5% and NSC later rises to 7.7%, your rate automatically moves to 8.05% at the next reset (1 January or 1 July). The reverse is also true: if NSC falls, your rate drops. You are always at the prevailing NSC + 0.35%, regardless of when you invested.

Q3 Is the interest paid monthly like SCSS?

No. FRSB interest is paid semi-annually — on 1 January and 1 July — directly to your linked bank account, with no compounding. If you need monthly income, SCSS (for those 60+) or a bank FD with a monthly-payout option is a better fit. The FRSB is designed for accumulation of steady half-yearly income, not a monthly cash flow.

Q4 Is an FRSB better than PPF?

Different, not simply better. FRSB pays a higher headline (8.05% vs PPF's 7.1%) but is fully taxable, so in the 30% bracket it nets ~5.64% — below PPF's tax-free 7.1%. PPF also allows partial withdrawal after year 7 within its 15-year term. For high-bracket investors PPF usually wins; for low-bracket investors the FRSB's higher pre-tax rate can come out ahead. Match the choice to your tax slab and horizon.

Q5 Can I use an FRSB as collateral for a loan?

No. FRSBs cannot be pledged or used as collateral with banks or NBFCs — unlike fixed deposits, which many lenders accept. Government savings bonds like FRSBs and NSC are not eligible for pledging. If you may need to borrow against an asset, that is another reason not to lock a large sum into an FRSB.

Q6 What happens if I die before maturity?

Your nominee (or legal heir, if none is named) receives the principal plus accrued interest. The bond is closed rather than continued, and proceeds are paid out. Because there is no other early exit for under-60s, nomination is both mandatory and genuinely important — name a beneficiary at the time of investment to avoid delays in claim settlement.

Q7 Why was TDS deducted at ₹10,000 when my bank FD threshold is ₹50,000?

FRSBs apply a ₹10,000 annual-interest TDS threshold to all investors — including senior citizens — whereas bank FDs offer seniors a ₹50,000 threshold under Section 194A. It is simply a different rule for this instrument. If your total income is below the taxable limit, submit Form 15G (under 60) or Form 15H (60+) to the issuing bank to avoid the deduction.

Key Terms & Definitions

Floating Rate Savings Bond (FRSB)

A government savings bond issued by the RBI for the Government of India, introduced in 2020, whose interest rate resets every six months rather than staying fixed. It has a 7-year tenure, is non-tradable, and pays interest semi-annually to the investor's bank account.

The Reset Formula (NSC + 0.35%)

The FRSB rate equals the prevailing National Savings Certificate rate plus a permanent 0.35% spread, recalculated on 1 January and 1 July. NSC at 7.7% gives an FRSB rate of 8.05%. The spread never changes, so the bond always pays 0.35% more than NSC — up or down.

Income Risk vs Price Risk

Because the FRSB is non-tradable, its principal never fluctuates — zero price/duration risk, unlike a G-Sec. The trade-off is income risk: the semi-annual payout falls when NSC falls. Floating shifts the risk from being locked at a low rate to an income you cannot predict.

Lock-in & Senior Exit

Under-60 investors are locked for the full 7 years (exit only on death or court order). Investors 60+ may exit after a reduced tenure — 6 years (60–70), 5 years (70–80), 4 years (80+) — with a penalty of 50% of the last six months' interest.

Post-Tax Return

The return after slab-rate tax on interest. FRSB interest is fully taxable with no Section 80C benefit, so an 8.05% headline becomes ~5.64% in the 30% bracket. Always compare instruments on a post-tax basis — where tax-free PPF at 7.1% can beat a higher-headline FRSB.

₹10,000 TDS Threshold

TDS is deducted on FRSB interest once it exceeds ₹10,000 in a year — for all investors, including seniors, unlike a bank FD's ₹50,000 senior threshold. Investors below the taxable limit can file Form 15G/15H to prevent the deduction.