What are Gold Bonds?

Back in 2009 State Bank of India had launched Gold Deposit Scheme (GDS) when it saw big opportunity there. It was the time of global economic turmoil and the yellow metal was excepted to rise in demand. If you were rich and possessed lots of gold(which you did not use), you could deposit it at the bank and earn a small interest on it.

The icing on the cake was that you be exempted from wealth tax, capital gains tax and income tax on interest earned. In case of exigencies you could pledge the GDS and avail loan. And of course, you would save on storage charges as well. Overall it made sense for wealthy gold lovers to keep their metal in SBI Gold Deposit Scheme. However it was not meant for everyone since minimum deposit was 500 grams- not an amount small investors would possess.

Tenure and interest of Gold Bond Scheme

Gold Deposit Scheme had three different tenures: 3 yrs, 4 yrs and 5 yrs. It had a lock in period of 1 year. Premature withdrawal was allowed after a year with a penalty. The interest was nominal- in line with gold currency XAU- interest could not have been the biggest motivator for depositing in GDS. Interest was cumulative and was calculated in gold terms but paid in rupees. This means if you deposited 500 grams it would earn 5 grams more at the end of the first year.

Rate of interest per annum on gold bond back then was:


Rate of Interest (%)

3 yrs


4 yrs


5 yrs


What did they do with the gold?

The gold bars, coins or jewelry you deposited was first checked for purity. This they did in the government mint by melting and removing the base metal and non-gold elements, if any. After bringing it to uniform fineness of 999 it is stored as gold bars. So this wasn't meant for those who were attached to their jewelry! Gold Deposit Certificate would be issued by the bank after this.

Gold deposited in the scheme would be lent to jewelers for manufacture of ornaments.

Repayment of gold bonds

At the end of the tenure gold deposit could be collected either as gold bars or in rupees. In case of gold bars, the weight could be lesser than what you deposited depending on purity. Gold Deposit can be extended after completion of tenure.

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