The bank, 80% owned by the Treasury, hopes the agreement allowing it to resume future dividend payouts will help pump its shares back up towards the price that will enable the Government to break even on its £45bn rescue.
RBS has been crippled by the cost of setting up a bad bank for its toxic assets and charges relating to historic misconduct and reported an £8.2bn annual loss earlier this year. It is unlikely to start paying dividends soon.
However, it still feels hampered by a condition set out in its rescue agreement with the Treasury that effectively blocks the bank from making dividend payouts to ordinary shareholders while the Government holds its stake.
It has agreed it will pay £320 million this year, followed by a further £1.18bn, to enable it to exit the arrangement. Any portion left unpaid by the start of 2016 will be subject to 5% annual interest, or 10% if it is not paid by 2021.
Chancellor George Osborne said: "This is another important step on the road to a more resilient banking system and in dealing with the problems of the past to get the taxpayer's money back."
RBS chief executive Ross McEwan said: "Today's agreement is a vote of confidence in the progress we have made in rebuilding RBS and in our plan for the bank's future."
The bank said it believed the deal would over time "increase the appeal of RBS's ordinary shares to a wider range of equity investors and may expedite the timeline for Her Majesty's Treasury to start reducing its shareholding in RBS".
Its argument is that the prospect of receiving a dividend before the Government returns its stake to the private sector will make shares more attractive. This would help the stock more promptly achieve the break-even value, commonly cited as 500p, which it would need to reach for the Treasury to sell its stake at what is seen as a fair value to the taxpayer. Shares are at present 309.8p.
The deal was announced after it was approved by the European Commission under EU rules on state aid.