Why RBI floating rate bond with 8.05% interest is still one of the best investment options for most investors?

Despite an overall fall in the interest rate, RBI floating rate bonds still remain the safest investment options for most investors that gives them one of the higher interest rate offering a 8.05%. RBI bond is issued by the Government of India and has a sovereign guarantee behind it.

Not only does it offer better interest rate than many fixed rate investments, including small saving schemes and fixed deposits (FDs), but investors can invest unlimited amount in the bond. Let’s see what makes this bond special and can you make it part of your investment strategy.

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RBI floating rate bond offers higher rate than many FDs

The RBI bond is offering a higher interest rate compared to FDs of most banks, including public and private banks. After the RBI cut the repo rate by 125 bps in 2025, many banks have reduced FD interest rates.

Mukesh Pandey, Director of Rupyaa Paisa, says that in such a scenario, investors who have excess cash or, who are soon to reach their long-term goals should consider moving a portion of their fixed income investment into the RBI bonds to secure a higher real return compared to the usual FDs.

Kuppala says that while most large banks currently offer 6–7% rates on long-term FDs, the rates are locked at the time of investment, while floating rate bonds adjust with market rates over time.

Also Read: Have PPF, NSC, SCSS interest rates changed for January-March 2026? Check latest rates of small savings scheme announced today

Fixed Deposit Interest Rates (Public Sector Banks)

Bank Name	Highest interest rate slab (%)	Tenure	Interest rate 1-year tenure (%)	Interest rate 3-year tenure (%)	Interest rate 5-year tenure (%)
Bank of Baroda	6.6	444 days – BoB Square Drive Deposit Scheme	6.25	6.5	6.4
Bank of India	6.7	450 days - Star Swarnim	6.25	6.25	6
Bank of Maharashtra	6.55	500 days	6.2	5.25	5
Canara Bank	6.15	555 days	5.9	5.9	5.9
Central Bank of India	6.5	2222 days; 3333 days	6.2	6	6
Indian Bank	6.6	444 days	6.1	6.25	6
Indian Overseas Bank	6.6	444 days	6.5	6.1	6.1
Punjab National Bank	6.5	390 days	6.25	6.4	6.25
Punjab & Sind Bank	6.6	444 days	5.85	5.85	5.95
State Bank of India	6.45	444 days - Amrit Vrishti	6.25	6.3	6.05
Union Bank of India	6.3	400 days	6.25	6	5.9

Source: Paisabazaar.com, As on December 31, 2025

Fixed Deposit Interest Rates (Private Sector Banks)

Bank Name	Highest interest rate slab (%)	Tenure	Interest rate 1-year tenure (%)	Interest rate 3-year tenure (%)	Interest rate 5-year tenure (%)
Axis Bank	6.45	15 months to 10 years	6.25	6.45	6.45
Bandhan Bank	7.2	2 years to less than 3 years	7	7	5.85
City Union Bank	6.75	500 days	6.5	6.5	6.25
HDFC Bank	6.45	18 months to 3 years	6.25	6.45	6.4
ICICI Bank	6.6	2 years 1 day to 10 years	6.25	6.6	6.6
IDFC FIRST Bank	7	450 days to 5 years	6.3	7	7
IndusInd Bank	7	1 year 6 months to less than 1 year 7 months	6.75	6.9	6.65
Kotak Mahindra Bank	6.7	391 days to less than 2 years	6.25	6.4	6.25
RBL Bank	7.2	18 months to 3 years	7	7.2	6.7
YES Bank	7	18 months 1 day to less than 5 years	6.65	7	6.75

Source: Paisabazaar.com, As on December 31, 2025

What makes RBI floating rate bonds unique

Chartered accountant, Foram Naik Sheth, KMP, Wealth Management Solutions, NPV Associates LLP, says the bond is issued directly by the RBI on behalf of the government, they have no default risk, making them safer than corporate bonds or even bank FDs.

Chartered accountant, Foram Naik Sheth, KMP, Wealth Management Solutions, NPV Associates LLP, says it means that when broader market and government savings yields rise, RBI bond’s returns adjust upward automatically.

“This floating mechanism protects you against the erosion of returns in a rising rate environment and the semi-annual payouts create a consistent income stream. These bonds are ideal for conservative investors as it provides low volatility and better protection against interest-rate cycles compared to long-term fixed deposits,” says Sheth.

How RBI floating bond interest rate is determined

Chakrivardhan Kuppala, co-founder and Director, Prime Wealth Finserv, says the coupon rate, or the interest rate, of the RBI bond is linked to the National Savings Certificate (NSC) rate plus a fixed spread of 0.35% and is reset every six months (January 1 and July 1). For the July–December 2025 period, this resulted in an interest rate of 8.05% per annum. Even for the period January 1 to June 30 the interest rate remains unchanged at 8.05%.

“Because the rate is reset periodically, the return moves in line with changes in broader interest rates, rather than remaining fixed for years,” says Kuppala.

No investment limit unlike small savings schemes such as SCSS, SSY

Among small savings schemes, the highest joint interest rate is 8.2% in Senior Citizen Savings Scheme (SCSS) and Sukanya Samriddhi Account (SSY). Though both schemes offer a higher interest rate than RBI floating rate bond, both have investment limits.

While SCSS has a maximum investment limit of Rs 30 lakh, SSY has a maximum investment limit of Rs 1.5 lakh in a financial year. While there is no such limit in the RBI floating bond. One can invest a minimum of Rs 1,000 in the RBI, while there is no maximum limit.

How can investors make it part of their investment strategy?

Pandey says that investors utilise the RBI Floating Rate Bonds as a means to lock in the low-risk section of their portfolio, particularly for the objectives with a set duration of about seven years or for retirement income planning.

“Those bonds yield one steady interest payment every six months along with the protection of the principal, they are the best option for holders of the lowest risk, for sure, retirees who want income periodically,” opines Pandey.

Sheth says RBI bonds work best as a capital-preservation and income-stability component rather than a return-maximising instrument.

Sheth suggests conservative or risk averse investors to incorporate RBI bonds as a core holding in their debt allocation for stability. “Pair with equity (for growth) and liquid funds (for emergencies),” says Sheth.