Govt to roll out new savings bonds that will offer a higher rate of interest than small savings 

On June 26, the Central government said that it has decided to issue a floating rate, taxable savings bond for an initial coupon of 7.15 per cent, to be reset half-yearly from Jan 1, 2021. The rate of the coupon will be pegged under the existing National Saving Certificate or NSC rate with a spread of 35 basis points (bps) over the respective NSC rate. RBI will issue the details and operational guidelines on this.

The bond will replace the existing savings bonds that the government offered at 7.75 per cent until May 28. The advantage that these new bonds will provide is that these will be floating, unlike the previous ones that were fixed. And so, it will work as an inflation hedge and save the government from higher costs when rates are low.

RBI said, “The bond will be available at State Bank of India and other nationalised banks, as well as four private sector banks”. Only Indian residents and Hindu undivided family will be permitted to invest in these bonds.

The Transaction involved in subscription of bonds will be carried out through the usage of cash (of up to Rs 20,000), drafts, cheques or any electronic mode. The bonds will only be transferable to the nominee or legal heir after the death of the holder and not in any other condition to anybody. The holder is not allowed to pay interest on these bonds on a cumulative basis and will have to pay it only on a half-yearly basis.

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