For the majority of investors, RBI variable rate bonds—which provide a higher interest rate of 8.05%—remain the safest investment alternatives despite an overall decline in interest rates. The Indian government issues RBI bonds, which have a sovereign guarantee.
Why investors prefer RBI variable rate bonds
In addition to having a higher interest rate than many fixed rate investments, such as fixed deposits (FDs) and modest savings plans, the bond allows investors to make limitless contributions. Let us examine what makes this bond unique and if you may include it into your financial plan.
The interest on an RBI floating rate bond is greater than that on many FDs.
Comparison with bank fixed deposits
In comparison to FDs from the majority of banks, both public and private, the RBI bond offers a greater interest rate. Many banks have lowered FD interest rates after the RBI lowered the repo rate by 125 basis points in 2025.
According to Mukesh Pandey, Director of Rupyaa Paisa, investors who have extra money or who are about to accomplish their long-term objectives can think about shifting a part of their fixed income investment into RBI bonds in order to get a better actual return than standard FDs.
Fixed versus floating rate structure
According to Kuppala, while the majority of big banks presently provide long-term FDs with rates between 6 and 7%, the rates are fixed at the time of investment, whereas floating rate bonds gradually change in value in line with market rates.
Interest rates on fixed deposits (public sector banks)
🏦 Bank FD Interest Rates Comparison
| Bank Name | Highest Rate (%) | Special Tenure | 1 Year (%) | 3 Year (%) | 5 Year (%) |
|---|---|---|---|---|---|
| Bank of Baroda | 6.6 | 444 days – BoB Square Drive | 6.25 | 6.50 | 6.40 |
| Bank of India | 6.7 | 450 days – Star Swarnim | 6.25 | 6.25 | 6.00 |
| Bank of Maharashtra | 6.55 | 500 days | 6.20 | 5.25 | 5.00 |
| Canara Bank | 6.15 | 555 days | 5.90 | 5.90 | 5.90 |
| Central Bank of India | 6.5 | 2222 / 3333 days | 6.20 | 6.00 | 6.00 |
| State Bank of India | 6.45 | 444 days – Amrit Vrishti | 6.25 | 6.30 | 6.05 |
Interest rates on fixed deposits (private sector banks)
🏦 Private Bank FD Interest Rates Comparison
| Bank Name | Highest Rate (%) | Tenure | 1 Year (%) | 3 Year (%) | 5 Year (%) |
|---|---|---|---|---|---|
| Axis Bank | 6.45 | 15 months to 10 years | 6.25 | 6.45 | 6.45 |
| Bandhan Bank | 7.20 | 2 years to < 3 years | 7.00 | 7.00 | 5.85 |
| City Union Bank | 6.75 | 500 days | 6.50 | 6.50 | 6.25 |
| HDFC Bank | 6.45 | 18 months to 3 years | 6.25 | 6.45 | 6.40 |
| ICICI Bank | 6.60 | 2 years 1 day to 10 years | 6.25 | 6.60 | 6.60 |
| IDFC FIRST Bank | 7.00 | 450 days to 5 years | 6.30 | 7.00 | 7.00 |
| IndusInd Bank | 7.00 | 1Y 6M to < 1Y 7M | 6.75 | 6.90 | 6.65 |
| Kotak Mahindra Bank | 6.70 | 391 days to < 2 years | 6.25 | 6.40 | 6.25 |
| RBL Bank | 7.20 | 18 months to 3 years | 7.00 | 7.20 | 6.70 |
| YES Bank | 7.00 | 18 months 1 day to < 5 years | 6.65 | 7.00 | 6.75 |
What distinguishes RBI floating rate bonds?
According to chartered accountant Foram Naik Sheth of KMP, Wealth Management Solutions, and NPV Associates LLP, the bonds are issued directly by the RBI on behalf of the government and are safer than corporate bonds or even bank FDs since they have no default risk.
According to chartered accountant Foram Naik Sheth of KMP, Wealth Management Solutions, NPV Associates LLP, this implies that the returns on RBI bonds automatically increase in response to increases in government savings rates and the overall market.
Protection during rising interest rates
In a climate when interest rates are increasing, this floating mechanism shields you from the erosion of returns, and the semi-annual dividends provide a steady income stream. Compared to long-term fixed deposits, these bonds provide minimal volatility and superior protection against interest-rate cycles, making them perfect for conservative investors, according to Sheth.
RBI floating bond interest rate calculation method
According to Chakrivardhan Kuppala, co-founder and director of Prime Wealth Finserv, the coupon rate, or interest rate, of the RBI bond is adjusted every six months (January 1 and July 1) and is based on the National Savings Certificate (NSC) rate plus a preset margin of 0.35%. This led to an annual interest rate of 8.05% for the July–December 2025 period. The interest rate stays at 8.05% even from January 1 to June 30.
According to Kuppala, “since the rate is adjusted regularly, the return varies in step with changes in wider interest rates rather than being constant for years.”
Comparison with small savings schemes
The Senior Citizen Savings Scheme (SCSS) and Sukanya Samriddhi Account (SSY) have the highest combined interest rates among modest savings plans, at 8.2%. Both plans have investment limits even though they both have greater interest rates than RBI floating rate bonds.
In a fiscal year, SSY’s maximum investment cap is Rs 1.5 lakh, while SCSS’s is Rs 30 lakh. However, the RBI floating bond has no such cap. The RBI allows investments of at least Rs 1,000, with no upper limit.
How can investors include it into their investing plan?
According to Pandey, investors use RBI Floating Rate Bonds to lock in the low-risk portion of their portfolio, especially for retirement income planning or goals with a predetermined period of around seven years.
According to Pandey, “such bonds are the greatest choice for holders of the lowest risk, for sure, retirees who seek income occasionally, since they give one stable interest payment every six months together with the protection of the principle.”
Role in conservative portfolios
According to Sheth, RBI bonds are more effective as a component of income stability and capital preservation than as a tool for maximizing returns.
For stability, Sheth advises conservative or risk-averse investors to include RBI bonds as a core asset in their debt portfolio. “Combine liquid assets (for crises) with stock (for growth),” advises Sheth.
