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Tata Capital > Blog > Wealth Services > How RBI Bonds Score over Fixed Deposits?

Wealth Services

How RBI Bonds Score over Fixed Deposits?

How RBI Bonds Score over Fixed Deposits?

Once touted as a rewarding investment, fixed deposits (FD) are losing their popularity rapidly, owing to flat-lining interest rates. Does that mean investors are left with one less avenue for safe investments at a modest rate of return? Not unless you know about RBI bonds that have turned up as a blessing in disguise.

Why Do RBI Bonds Score over Fixed Deposits?

The Reserve Bank of India (RBI) issues floating-rate savings bonds at a whopping 7.15% rate of interest. This interest rate is taxable, the same as an FD rate is. The next ROI reset date for an RBI bond is 1st July 2021. If you are looking to invest in a lump sum, an RBI bond offers at least a 1% to 2% higher interest rate than a fixed deposit.

Salient Features of an RBI Bond

  • While single, minor and joint individuals and HUFs are eligible to invest in an RBI bond, NRIs are excluded from this scheme.
  • The minimum investment required is that of 1 bond. A single RBI bond costs Rs. 1000.
  • While several banks enforce an upper investment cap on fixed deposits, the RBI bonds have no such limits. You can invest as much money as you want in this instrument.
  • The bonds have a fixed tenure of 7 years. However, premature withdrawals are allowed, subject to a nominal lock-in period for different age groups.
  • The interest on the bonds will be payable at half yearly intervals on Jan 1st and July 1st every year. There is no option to pay interest on cumulative basis.
  • The coupon/interest of the bond would be reset half yearly starting with Jan 1st, 2021 and thereafter every July 1st and Jan 1st.

Additional Read: Investing in different asset classes based on their risk

Why Choose RBI Bonds?

  • As mentioned earlier, they offer a significantly higher rate of interest of 7.15%. No reliable financial institution, at this point, provides such a rate on a fixed deposit.
  • These bonds come with a sovereign guarantee. Hence, they run no credit risk, and the entire amount is assuredly safe. However, when it comes to FDs, the Government of India insures each fixed deposit for Rs. 5 lakhs. Meaning, should a financial institution go bankrupt, you will get Rs 5 lakhs back per FD.
  • Much like a fixed deposit, RBI bonds also allow you to choose a nominee at the time of investment.

Additional Read: Top things to know about Corporate Bond investments

Lock-in Durations for the RBI Bonds

Different age limits invite different lock-in durations. Here they are:

Age BracketLock-In Duration
60 - 706 years
70 – 805 years
80 and above4 years

To Sum Up

Let's face it! Today, fixed deposits provide a poor rate of interest regardless of whether you are a senior citizen or not. Whereas the RBI Bonds specifically benefits individuals that are 60 years and above. Therefore, if you are planning on opening an FD account, invest in RBI bonds instead.

If you require more information before applying, reach out to Tata Capital Wealth – one of India's leading wealth management institutions.

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