Interest rate on variable rate savings bonds, 2020 (taxable) until December 2021 announced – Check the new rate

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10-year US Treasury yields remained close to 1.3% on Friday after strong retail sales data, but fears of rising inflation continue to plague sentiment.

RBI announced the interest rate on 2020 Floating Rate Savings Bonds (taxable) for the period July 2021 – December 2021. The government launched the 2020 Floating Rate Savings Bonds (taxable) scheme from of July 1, 2020. The coupon rate for the first coupon period, payable on January 1, 2021, has been set at 7.15%. The coupon rate on 2020 variable rate savings bonds (taxable) for the period from July 1, 2021 to December 31, 2021 and payable on January 1, 2022 remains at 7.15%, unchanged compared to the previous semester.

The coupon rate or interest rate is set at a positive deviation of 35 basis points or 0.35% from the prevailing NSC rate. The interest rate on 5-year CNS remains at 6.8% until September 30, 2021.

Previously, the government had kept the interest rates on post office small savings plans unchanged for the July-August-September 2021 quarter compared to the previous quarter.

The 2020 Variable Rate Savings Bonds have a term of 7 years and the interest rate will continue to fluctuate during the term of the plan. Interest will be paid semi-annually to investors in July and January of each year. Only certain categories of elderly people can benefit from an early repayment of bonds.

The minimum investment amount is Rs 1000, while there will be no maximum limit for investments made in the Bonds. Maximum cash investment can be made up to Rs 20,000. One can invest through branches of State Bank of India, nationalized banks and four specified private sector banks.

What to do

As bank term deposit rates fall, floating rate savings bonds may offer a better avenue for savers, especially the elderly. Yields are also higher than NSC but have a slightly longer duration than NSC. In NSC there is a tax benefit under section 80C, but in floating bonds there is no such tax benefit. Interest income in both is fully taxable according to its tax base. Therefore, it is necessary to invest while keeping its taxation and the duration of the bonds in context, because the liquidity is less in these bonds, being non-transferable and not available for the negotiation.

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