Getting a tax refund is always a wonderful feeling, like getting a surprise gift. It is advisable to make the best use of this refund by investing it prudently. Savings bonds are one of the better assets you can invest your tax savings in. Read on to find out more about savings bonds.

What is a Savings bond?

A savings bond is a sovereign bond issued by the government of India to meet its borrowing needs. The government uses the money raised by selling these bonds to raise funds for infrastructure, development, and other sovereign expenses. The Reserve Bank of India (RBI) is the issuing authority for savings bonds that authorizes select banks and brokers to sell these to the general public on its behalf. To buy a savings bond, you can visit your bank branch or contact your broker. Since savings bonds are issued by the government, they are backed by a sovereign guarantee. This means that the government is contractually obligated to return your money at the end of the maturity period. This is a unique feature of sovereign bonds that makes them one of the safest investment options. By comparison, investments such as fixed deposits (FD) or stocks do not guarantee your investment. Thus savings bonds are a safe option to save your tax refund.

Advantages of Savings bonds

Savings bonds have a number of advantages that make them a good investment option to park your tax refund in.

High-Interest Rates

Although savings bonds usually have floating interest rates, which means the interest rates on them are revised from time to time by the RBI, they still give better returns than a host of other investment options such as fixed deposits (FDs). In 2021, the interest on savings bonds is between 7-7.5 %. This makes them a very attractive option to invest your tax refund in.

No Upper Limit for Investment

There are a number of investment schemes in the market that offer returns comparable to savings bonds such as Kisan Vikas Patras, Senior Citizen Savings Scheme, Post Office Savings Account, National Saving Certificate, etc. However, all of these come with an upper limit for the maximum amount that you can invest. With savings bonds, there is no upper limit and you can invest as much as you want. There is however a minimum limit for investment which is usually fixed at Rs. 1000.

Multiple Interest Options

Savings bonds provide the investor with two options for utilizing the interest rate – cumulative and non-cumulative. With cumulative interest, the interest is paid out at maturity, and with non-cumulative interest, the investor can withdraw the interest every six months. Sometimes the government also issues savings bonds that allow for the compounding of interest earned. The investor should check with the RBI portal from time to time for such schemes.

Flexible Exit Options Depending on Age

Although savings bonds have a lock-in period of 7 years, premature exit is permitted subject to certain conditions. Investors between 60 to 70 years of age can withdraw their money after 6 years if they want. Those between 70 to 80 years can do so after 5 years whereas those above 80 years of age can exit the investment after years only.

Guaranteed by the Government of India

As already mentioned, savings bonds come with a sovereign guarantee which means the government is contractually obligated to return your money at the end of a term period. This is a guarantee that even investments such as fixed deposits (FD), usually considered safe, do not provide. At the same time, it is important to note that savings bonds are not tax-free. Interest earned from these bonds is added to your taxable income and taxed at the applicable rates. Nor can a savings bond be used as collateral to borrow money from a bank, unlike a fixed deposit (FD).

Eligibility for Buying Savings bonds

Both individuals and Hindu Undivided Family (HUF) can buy savings bonds. Individuals must be citizens of India and not Non-Resident Indians. (NRI)

How to Buy Savings bonds

Savings bonds can be bought from select banks and brokers. Contact your nearest bank or your stock market broker to buy a savings bond. Savings bonds can be bought both in the online and offline mode. You can exercise your choice of payment such as cheque, netbanking, debit card, credit card, etc. to purchase savings bonds.


Investing in savings bonds is a great way to save your tax refund. Savings bonds come with a sovereign guarantee that makes them one of the safest investment options as the principal is guaranteed by the government of India. They also carry a relatively higher rate of interest, which is usually fixed a few percentage points above the prevailing National Savings Certificate rate. With no upper limit on the amount one can invest, savings bonds have a distinct edge over several other investment options that cap the maximum amount one can invest. However, one must remember that the interest on savings bonds is taxable. Given all these features, savings bonds are a useful addition to your investment portfolio, and a great to way utilize your tax refund. At the same time, it is always advisable that you do your own research into the market before investing in any asset or investment vehicle.