For July 1–December 31, 2026, Floating Rate Savings Bonds, 2020 (Taxable) pay 8.05% a year, but that rate is reset every six months and the bond normally locks your money for seven years. A bank fixed deposit (FD) can offer a term and exit rules that better match your cash-flow needs, but its rate and premature-closure penalty depend on the specific bank and product.
There is no universal winner. Compare a dated FRSB coupon with a named bank’s current FD quote over the same holding period, then adjust for payout method, tax, reinvestment and access to principal.
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What you are comparing
Floating Rate Savings Bonds, 2020 (Taxable)
FRSB are interest-bearing, non-tradeable Government of India bonds. The Reserve Bank of India describes them as repayable seven years from the issue date. You cannot use an ordinary market sale to get out early. Interest is paid twice a year rather than added automatically to the principal.
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The coupon is linked to the prevailing National Savings Certificate rate plus a spread specified by the scheme. It therefore changes at reset dates. The rate announced for July 1–December 31, 2026 is 8.05% per year, made up of 7.70% plus 0.35%. Central Bank of India lists January 1 and July 1 as the payment dates for the relevant half-year periods.
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Bank fixed deposits
An FD places a lump sum with a bank for a selected term. The bank contract sets the interest rate, whether interest is paid monthly, quarterly or at maturity, how cumulative interest compounds, and what happens if you close the deposit early. The Reserve Bank of India defines a term deposit as payable after its fixed period; banks may decide their own penal rate for premature withdrawal.
Because FD pricing varies by bank, tenure, customer category and payout option, “the FD rate” is not a meaningful single number. A fair comparison identifies the bank, exact tenure, deposit type, payout instruction and applicable customer category.
Key terms side by side
| Feature | FRSB 2020 (Taxable) | Bank fixed deposit |
|---|---|---|
| Current rate reference | 8.05% per year for July 1–December 31, 2026 (7.70% plus 0.35%), as listed by Central Bank of India | Set by the named bank, tenure, customer category and product; obtain the live quote |
| Rate certainty | Resets every six months; 8.05% is not a seven-year guarantee | Usually fixed for the contracted term, subject to the bank’s product terms |
| Interest payment | Semi-annually, on January 1 and July 1 | Depends on the selected monthly, quarterly, annual or cumulative option |
| Normal maturity | Seven years | The term selected in the bank’s contract |
| Early exit | Generally unavailable; eligible senior citizens may use age-based premature redemption rules | Depends on the contract; RBI allows banks to set premature-withdrawal penalties |
| Partial withdrawal | Not permitted under the cited premature-redemption terms | Depends on the product; many contracts require closure of the deposit rather than a partial withdrawal |
| Tradability | Non-tradeable | Not a market-traded security; access is through the bank’s withdrawal rules |
| Tax character | Interest is taxable | Interest is taxable as interest income |
| Withholding reference for AY 2026–27 | Income Tax Department table lists 10% TDS on interest on securities, including FRSB | The same table lists 10% under section 194A for other interest, subject to applicable rules |
The table is a decision map, not a substitute for the actual offer documents. Record the date on which you checked the FRSB coupon and the FD quote. A rate, penalty or operational process can change after that date, while your investment may run for years.
How the 8.05% FRSB coupon works
The 8.05% figure applies only to the half-year beginning July 1, 2026 and ending December 31, 2026. It is a current coupon, not a promise that every future six-month period will pay 8.05%. At the next reset, the applicable National Savings Certificate rate and the scheme spread determine the new coupon.
For an illustration, a ₹1,00,000 holding at 8.05% produces ₹8,050 of annual interest, paid as two instalments of ₹4,025 before tax. This example assumes the principal remains ₹1,00,000 and does not project future reset rates. If you spend each instalment, your money does not compound; if you reinvest it, the reinvestment rate and timing affect the eventual return.
The payment calendar matters for cash planning. Interest for the July–December period is due on January 1, while interest for the January–June period is due on July 1. A holder seeking monthly income must budget between those dates rather than expecting a monthly credit.
Because the coupon is reset semi-annually, two risks are easy to miss. First, a later reset can be lower than 8.05%, reducing future cash income. Second, a later reset can be higher, but you cannot assume that increase when calculating today’s seven-year return. A responsible projection therefore uses a range of possible future coupons or simply presents the current period as a dated input.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteThe 0.35-percentage-point spread is part of the scheme formula, not a bonus that is separately paid. When the underlying National Savings Certificate reference changes, the resulting FRSB coupon can change at the next applicable reset. Read the coupon notice for each period rather than copying an old rate into a new calculation.
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How an FD’s return is determined
Start with the bank’s quoted rate for the exact term you intend to hold. Then identify the payout instruction:
- Periodic payout: the bank pays interest at the selected interval. This can provide cash flow but normally leaves less interest to compound inside the deposit.
- Cumulative payout: interest remains invested and compounds under the bank’s stated frequency until maturity. The maturity value, not just the headline annual rate, is the relevant figure.
- Premature closure: the bank may recalculate interest using the rate applicable to the time actually on deposit and deduct a separate penalty. RBI permits banks to set these penal rates, so the exact contract controls.
Do not compare an FRSB coupon with an FD maturity value without putting both on the same basis. A semi-annual bond payment, a cumulative FD and a monthly-payout FD produce different cash-flow patterns even when their quoted annual rates look similar.
Ask the bank for the maturity amount and the premature-closure illustration for your exact principal. Check whether the quoted rate is an annualized rate, how often cumulative interest compounds, and whether a monthly or quarterly payout is discounted from the cumulative option. These details determine the cash actually received and the amount available for reinvestment.
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An FD term that ends close to a known expense can reduce reinvestment uncertainty: the principal is scheduled for that date, subject to the contract. A longer FD can carry a different rate and a different exit cost. Splitting money across several maturities may improve scheduling, but each deposit still follows its own bank terms; do not assume a facility on one product applies to every FD from that bank.
Liquidity: where the products differ most
FRSB access to principal
Ordinary FRSB redemption occurs after seven years. The bond is non-tradeable, so selling it in an open market is not an ordinary exit route.
Premature redemption is restricted to eligible senior citizens under the cited terms. The minimum lock-in depends on age at the time of investment:
| Age band | Minimum lock-in before eligible redemption |
|---|---|
| 60–69 | Six years |
| 70–79 | Five years |
| 80 and above | Four years |
A qualifying investor must request full encashment; partial encashment is not allowed. The cited product terms deduct 50% of the interest due for the final six-month period as the premature-redemption penalty. Check the current issue instructions when you invest because operational terms can be amended.
The age test and lock-in are not interchangeable with a general emergency-withdrawal right. A senior citizen who needs only part of the principal cannot use the cited facility to take a smaller amount. Someone below the eligibility threshold should plan on the ordinary seven-year maturity rather than assuming that a financial emergency will create an exception.
FD access to principal
An FD is not automatically liquid merely because it is held at a bank. The normal arrangement is payment at the end of the selected term. Some products allow early closure, while others restrict it or apply a rate reduction and penalty. RBI’s framework leaves the premature-withdrawal penal rate to the bank.
Before depositing, ask for the written rule covering early closure, the interest rate that would be used after recalculation, any fixed penalty, minimum holding period and whether partial withdrawal is possible. Keep an emergency reserve outside either product if you cannot tolerate a long lock-in or an uncertain exit cost.
Compare exit rules in rupees, not just in percentage points. A lower rate for the shorter actual holding period plus a separate penalty can materially reduce the interest you expected. Also check the process: whether a request must be made at the issuing branch or through the bank’s stated channel, and when the proceeds are credited. The contract and current bank instructions govern those operational details.
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Tax: withholding is not your final tax bill
FRSB taxation
The scheme classifies FRSB interest as taxable. For assessment year 2026–27, the Income Tax Department’s withholding table lists 10% TDS on interest on securities and includes FRSB 2020 among its examples. TDS is an amount deducted at source; it is not a universal final tax rate.
FD taxation
FD interest is also taxable interest income. The same AY 2026–27 table lists 10% under section 194A for interest other than interest on securities, subject to the rules that apply to the account and recipient. A bank’s deduction therefore does not by itself tell you the final amount payable.
How to calculate an after-tax comparison
- Identify the relevant tax year and your applicable tax status.
- Record the gross cash flows: each FRSB half-year payment or the FD’s scheduled payouts and maturity amount.
- Apply any TDS shown by the issuer or bank, but keep it separate from your final tax liability.
- Use the tax treatment applicable to your return to estimate the final tax on interest.
- Compare the resulting post-tax cash flows over the same horizon, including any reinvestment of interim payments.
For the ₹1,00,000 FRSB illustration above, 10% withholding on a ₹4,025 half-year interest payment would be ₹402.50 where that withholding applies, leaving ₹3,622.50 paid at source. Your final tax can differ, so do not label ₹3,622.50 as a guaranteed post-tax return.
Tax comparisons also need a common timing assumption. FRSB interest is recognized through two scheduled payments, while a cumulative FD may show most cash at maturity. Compare the tax year in which interest is credited or otherwise treated under applicable rules, and retain the issuer’s certificates and statements. Do not assume that equal TDS percentages make the products’ final tax outcomes identical.
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- Set the time horizon. Write down when you need the principal. A three-year objective cannot be treated as a seven-year FRSB objective unless you are an eligible senior citizen who can meet the relevant lock-in.
- Get a named FD quote. Capture the bank, date, tenure, customer category, deposit amount, payout option and cumulative maturity value. Do not use an unsourced “average FD rate.”
- Record the FRSB coupon period. For a purchase in the July–December 2026 window, use 8.05% only for that period and model later six-month coupons as variable.
- Map cash-flow dates. Put FRSB payments on January 1 and July 1; put FD payments on the dates promised by the bank. Include whether interim money is spent or reinvested.
- Price the exit. For FRSB, apply the seven-year maturity and the senior-citizen lock-in and penalty rules. For the FD, use the bank’s written premature-closure calculation.
- Apply tax consistently. Use the same tax year and status for both products, and distinguish TDS from final tax.
- Stress-test the decision. Consider a lower future FRSB reset, an FD closure before maturity, and the possibility that you need the principal during a lock-in.
Build a simple schedule with columns for date, opening principal, gross interest, withholding, net cash received, reinvestment and closing principal. For FRSB, enter the two annual payment dates and leave later coupon cells as variables. For the FD, enter the bank’s promised payout dates and maturity amount, then add a separate early-closure line using the bank’s written calculation. This prevents a headline-rate comparison from hiding a timing or liquidity mismatch.
Use the same starting amount in both cases. If one product pays interim interest and the other compounds it, either compare the cash flows as received or state an explicit reinvestment assumption. Do not silently reinvest FRSB payments at 8.05%; that rate is not guaranteed after the current reset period.
Which option fits common situations?
You need the money within a few years
A seven-year, non-tradeable bond is a poor structural match unless you qualify for the senior-citizen redemption facility and its lock-in still fits your date. An FD with a term that ends near your spending date may be easier to align, but verify its early-closure terms before relying on that flexibility.
You are seeking predictable interest income
FRSB provides two scheduled payments each year, but the coupon can change every six months. An FD whose rate is fixed for its contracted term can make the interest amount easier to forecast, while a cumulative FD postpones cash flow until maturity. Choose the payout design that matches your budget rather than comparing rates alone.
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FRSB may suit an investor who accepts a long lock-in, does not need market liquidity and is comfortable with reset risk. The 8.05% coupon should be treated as a current-period input, not as a seven-year yield assumption.
You are an eligible senior citizen
FRSB offers a defined premature-redemption route after four, five or six years depending on age. The 50% final-six-month interest penalty and full-encashment requirement still matter. Compare those costs with the bank’s FD closure terms before committing.
You need regular monthly spending money
Neither product should be described as monthly income without checking the payout instruction. FRSB pays on January 1 and July 1, so you would need to budget between payments. An FD can be opened with a monthly or quarterly payout if the named bank offers that option, but periodic payments may differ from the cumulative maturity economics.
You expect rates to change
FRSB passes future rate changes through its six-month reset mechanism. An FD normally locks the quoted rate for its selected term, but a new FD opened after maturity may carry a different rate. Decide whether you value a known contracted FD rate or the possibility that future FRSB resets move up or down.
Pitfalls that produce misleading comparisons
- Calling 8.05% a guaranteed seven-year return: the coupon resets every six months.
- Quoting an FD rate without naming the product: bank, tenure, customer class and payout option can change the result.
- Treating TDS as the tax rate: withholding is only a collection mechanism.
- Assuming every FD is freely withdrawable: the contract may recalculate interest or impose a penalty.
- Ignoring payment frequency: semi-annual FRSB income and cumulative FD growth are not equivalent cash flows.
- Overlooking the lock-in: FRSB generally returns principal only at seven years, with restricted senior-citizen access before then.
- Assuming partial FRSB encashment: the cited terms require full encashment for an eligible early redemption.
- Projecting today’s coupon indefinitely: future FRSB resets depend on the scheme formula and prevailing National Savings Certificate rate.
- Comparing unlike horizons: a seven-year bond and a two-year FD cannot be ranked fairly without explaining what happens to the money after the FD matures.
- Ignoring interim-cash use: spending FRSB interest and reinvesting FD interest produce different ending wealth even at identical quoted rates.
- Using an old rate notice: label the FRSB coupon with its exact six-month period and check the FD quote on the date of investment.
- Assuming eligibility: early FRSB redemption is an age-based senior-citizen facility, not a general right for every holder.
Questions to ask before investing
- What exact date will I need this principal?
- Can I leave the money untouched for the full FRSB term or the FD tenure?
- For the FD, what rate applies if I close early, and is there a separate penalty?
- Will I need monthly or quarterly income, or can I wait for maturity?
- How will my tax status affect the final after-tax return?
- For FRSB, am I eligible for premature redemption and which age-based lock-in applies?
- For FRSB, will I spend each January and July payment or reinvest it, and at what assumed rate?
- Does the FD quote specify the bank, tenure, customer category, payout mode, compounding method and maturity value?
- Is partial withdrawal available on the exact FD product, or would I have to close the entire deposit?
- Which coupon period and tax year apply to the figures in my comparison?
Bottom line
Choose FRSB only after accepting a seven-year, non-tradeable structure, semi-annual payments and a coupon that resets every six months; for July 1–December 31, 2026 the published coupon is 8.05%. Choose an FD when its specific term, payout schedule and documented withdrawal rule better fit your horizon. In either case, compare named, dated terms and post-tax cash flows—not headline rates in isolation.
Frequently Asked Questions
Is the 8.05% FRSB rate fixed for seven years?
No. The 8.05% coupon applies to July 1–December 31, 2026. FRSB coupons reset every six months using the scheme formula linked to the prevailing National Savings Certificate rate and its spread.
Can any FRSB holder withdraw before seven years?
No general early exit is provided. Under the cited terms, premature redemption is restricted to eligible senior citizens after an age-based lock-in: six years for ages 60–69, five years for ages 70–79 and four years for ages 80 and above.
Can I encash only part of my FRSB investment?
No. The cited premature-redemption terms require full encashment and do not permit partial encashment. They also deduct 50% of the interest due for the final six-month period as a penalty.
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They may be, but it depends on the exact FD contract. RBI says a term deposit is payable after its fixed period and allows banks to set their own premature-withdrawal penal rates. Check the bank’s written early-closure and partial-withdrawal rules.
Does 10% TDS mean my final tax on interest is 10%?
No. For AY 2026–27, the Income Tax Department table lists 10% TDS on interest on securities, including FRSB, and 10% under section 194A for other interest. TDS is withholding; your final tax depends on your applicable status and rules.
How often does FRSB pay interest?
FRSB pays semi-annually. The cited calendar lists January 1 and July 1 payment dates, so it does not provide an automatic monthly income stream.
Which gives the higher return, FRSB or an FD?
There is no universal answer from the stated facts. The result depends on future FRSB resets, the named bank’s rate and tenure, payout and compounding method, premature-closure terms, tax and the common investment horizon.
What information should I collect before comparing an FD with FRSB?
Record the FRSB coupon period and payment dates. For the FD, record the bank, quote date, tenure, customer category, deposit amount, payout option, compounding method, maturity value and written premature-withdrawal calculation. Then compare post-tax cash flows over the same horizon.
The Bottom Line
FRSB offers a dated 8.05% coupon for July–December 2026, but its seven-year maturity, six-month resets and restricted senior-citizen exit make liquidity and future income uncertain. An FD may fit a defined term better, but only its named bank contract reveals the rate, payout and early-closure cost. Compare both on identical horizons after tax.
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