India Post is the government operated postal system of India. It was founded in 1774. India Post comes under the Ministry of Communications and Information Technology.

Post Office is the most reliable place to make investment in India. Post office network is largest in India and is even present in those remote areas where banking facilities is still not available. Post office is a safe long and short term investment option for people especially from rural areas.

India Post has around 1,55,000 branches. These saving schemes provide financial stability to the citizens. Safety and security are the principal idea of investment for most of the Indian investors. Savings schemes offered by post offices are highly safe, government-backed schemes with attractive returns. Main target group of these schemes are small investors from rural and semi urban areas.

Schemes under Post Office:-

• Post Office Recurring Deposit (RD)
• Post Office Time Deposit (TD)
• Post Office Monthly Income Scheme (MIS)

First let’s get a brief understanding about the various schemes offered by the post office:-

Like a regular bank recurring deposit, Post Office Recurring Deposit also needs you to make payments at regular intervals of two, three and five years. This recurring deposit scheme offered by post office offers an interest rate of 6.9% per annum (quarterly compounded). If in any Post Office RD account, there is monthly default amount, the depositor has to first pay the defaulted monthly deposit with default fee and then pay the current month deposit. One withdrawal up to 50% of the balance allowed after one year.

Interest rate under Post Office Time Deposit is payable annually but calculated quarterly. Post office time deposit comes with different tenure options for investment. Current rate of interest applicable is below:

• 1year Time Deposit = 6.60%
• 2year Time Deposit = 6.70%
• 3year Time Deposit = 6.90%
• 5year Time Deposit = 7.40%

Minimum amount can be invested is Rs.200. And there is no cap on upper limit. There is no restriction on the number of accounts one can hold.

Post Office Monthly Income Scheme (MIS) is a popular investment scheme wherein an individual invests a particular amount and gets an assured monthly income in the form of interest. This recurring deposit scheme offered by post office offers an interest rate of 7.3% per annum. Under the Post Office MIS scheme, the interest payable on a monthly basis commencing from the date of deposit is deposited in your post office savings account. There are no income tax benefits available for investing in the Post Office MIS account. This scheme is suitable for those who want a steady flow of income, such as retired persons.

Now, let us have a look at a comparison between the various aspects of the above banking investment options. It will provide a better understanding on these:-

Summary:-

• All the schemes have alternative investment options. These options have almost same characteristics and features.

• In all the schemes, there is no age limit mentioned. Minors aged 10 and above can open account in their own names under this scheme.

• Only post office time deposit scheme has variety in tenure to choose from (1, 2, 3 & 5 years). Other two schemes have 5 years of tenure.

• Premature exit and closure of accounts under these scheme allowed only on paying penalties.\

• All the schemes have minimum investment conditions. Only post office monthly income scheme has maximum investment conditions. Other two schemes don’t have any upper limit for investment.

• None of the schemes are fully liquid schemes. Withdrawals from these schemes attract penalties.

• The deposit amounts as well as interest earned are taxable. No tax benefits available in any of the schemes. Only 5 year Time Deposit has tax benefit and is eligible for tax deductions.

• All the schemes get affected by inflation. No scheme has inflation protection. The returns given by these schemes will be affected by inflation rates.

• All the schemes are absolutely risk free and provide guaranteed returns. These schemes are reviewed every year and the interest rates are linked to the government securities (G-sec) of same maturity period. Revised rates will be announced at the beginning of every financial year based on previous year’s benchmark rate.

• Post Office schemes are government backed schemes. Thus, the capital invested in these schemes is fully protected.

Below you can see the interest rates offered by post office schemes:-

Interest Rates on Post Office Schemes August 2018

All post office saving schemes are very popular. You can compare all post office schemes by checking the interest rates of post office schemes, tax benefits and withdrawal and maturity period as specified by central government.

After checking all the information about the scheme, you should choose them wisely as per your requirement and duration for which you want assured and best returns.

Post Office Monthly Income Scheme (POMIS) is offered by Post Offices among other banking products, services and Post Office Schemes, under the governance of the Finance Ministry.

Only a resident Indian is eligible open a Post Office Monthly Income Scheme (POMIS) account. NRI’s cannot enjoy the benefits of this scheme. POMIS has the flexibility and reliability that calls to risk-averse investors, despite limited tax benefits.

The process of investing in Post Office Monthly Income Scheme (POMIS) can be done easily. It requires minimal documentation. The investors are required to submit a copy of their identity proof, an address proof, and some passport size photographs. The ID proof can be the passport, ration card, PAN card, or voter identity card.

Capital protection is its primary objective. The scheme is backed by the Government of India. Thus, the capital in the POMIS is completely protected. The POMIS is not inflation protected. This means that the returns from these deposits are affected by inflation rates.

The monthly interest can be collected directly from the post office or transfer it to the savings account. As a fixed income scheme, the money you invested is not subject to market risks. It is a quite safe scheme.

Age Conditions                 

No age limit is mentioned for opening a POMIS account. An account can also be opened in the name of a minor. A minor of 10 years and above age can open and manage the account.

They can avail this fund when they become 18. After attaining majority she/ he has to apply for conversion of the account in her/ his name.

But, for minors the investment cannot exceed Rs. 3 lakhs.

Investment Conditions

Post office recurring deposit has some investment conditions. You can start with a nominal initial investment of Rs. 1500. As per your affordability, you can multiply this amount.

You can open more than one account in your name. But the total deposit amount in all of them together cannot exceed:-

• 4.5 lakhs for an individual
• 9 lakhs for a joint account

You can invest a onetime fixed sum and start earning monthly. The maximum amount that a minor can invest in POMIS is Rs.3 lakhs.

Interest Rate

You earn income in the form of interest every month. The interest rates are higher compared to other fixed income investments like FD.

There are 3 ways in which the interest earned can be availed:-

• The interest will be automatically credited to the savings account with the post office.
• The depositor can request for interest withdrawal every month. He/she will receive the amount either as cash or through a cheque, as required.
• The interest can also be availed through post-dated cheques. The validity of the cheque will be 3 months from the date of issuance. But, this facility can only be availed if the cheque amount is more than Rs.100. If the post-dated cheque option is chosen for availing interest, the account holder receives the final amount after 5 years through the cheque only.

Interest Rates on Post Office Schemes August 2018

Currently interest rates on POMIS are 7.3​% per annum payable monthly.

Tenure of Deposit

Tenure of deposit is the time duration for which an investor deposits/invests his/her funds. The funds remain locked-in for this tenure (early withdrawal subject to conditions).

From 1^st December 2011 the lock-in period for Post Office Monthly Income Scheme is 5 years.

One may reinvest the corpus post maturity in the same scheme for another 5 years to get double benefits.

 Nomination Facility

Post office monthly income scheme provides nomination facility. Nomination is a facility that enables deposit account holders to nominate an individual, who can claim the proceeds of the deposit accounts or contents of the safe deposit lockers, post the death of the original depositors.

Nomination facility is available at the time of opening and also after opening of account. The investor can nominate a beneficiary (a family member) so that they can claim the benefits and corpus if the investor passes away.

Exit Option

You will receive the payout one month from making the first investment, and not the beginning of every month. The investor can move the funds to a recurring deposit.

POMIS allows premature withdrawal after one year but before 3 years at a nominal deduction of 2% as penalty and the remainder is paid to you. After 3 years at a nominal deduction of 1% as penalty and the remainder is paid to you. The investors don’t get any benefits if they withdraw the deposit before 1 year.

Post Office is still one of the largest banking service providers in the country. It is also associated with greater credibility than other investment avenues as it is governed by the Ministry of Finance.

If one is looking for a safe investment option that will earn decent returns, then one should consider one of the post office schemes.

The Post Office Monthly Income Scheme (POMIS) is not well-known among investors in the urban parts of the country. The population in urban India looks to invest in fixed deposits and other debt options for generating monthly incomes or even to just park their money. But the monthly income scheme offered by the Indian postal service, although lesser-known, offers many benefits to the investor.

It provides customers the following benefits:-

• It keeps the capital intact.
• It ensures that the customer receives a fixed monthly income.
• It yields better returns than debt-based instruments.

Interest can be drawn through auto credit into savings account standing at the same post office.

An individual can open the account by cash/cheque. In case of cheque, the date of realization in Government account will be considered as the date of opening an account.

Joint account can be opened by two or three adults. All joint account holders have equal share in each joint account. Single account can be converted into Joint. And Vice Versa.

A bonus of 5% on principal amount is admissible on maturity for MIS accounts opened on or after 8^th December 2007 and up to 30^th November 2011. No bonus is payable on the deposits made on or after 1^st December 2011.

Post Office Monthly Income Scheme Suitablility

• For:-

Investors who are looking to earn assured income from their savings.

• Not for:-

Investors who are not looking for regular income. That is investors who don’t need regular income.

Guaranteed Returns

Post Office Monthly Income Scheme (POMIS) investment scheme guarantees investors returns. You earn income in the form of interest which is payable monthly. These returns are called as fixed monthly income.

The returns are higher compared to other fixed income investments like FD.

Interest Rates on Post Office Schemes August 2018

From 1^st January 2018, interest rates on POMIS are 7.3% per annum.

Taxation

Post office MIS does not offer any tax benefits. It doesn’t fall under Section 80C. Thus, the income is subject to taxation. But it has no TDS either.

The monthly interest payout is also taxable income recorded under ‘income from other sources’. But, there is no TDS on the interest amount either.

The amount that is invested in POMIS is not eligible for tax rebates under Section 80C of the Income Tax Act, 1961.

Withdrawal

Post office monthly income scheme account allows premature withdrawal after one year.

If the investor is required to withdraw the money before 5 years, the following will be payable:-

• Deposit withdrawal within 1 year – The customer receives no benefits.
• Deposit withdrawal between 1 and 3 years – The customer receives the entire deposit after a nominal deduction of 2% as penalty.
• Deposit withdrawal after 3 years – The customer receives the entire deposit after a nominal deduction of 1% as penalty.

If the deposit and the interest are not withdrawn after 5 years, then that account will earn a simple interest (as per the post office savings account interest rate) up to 2 years. After that, the final amount will be kept idle, until withdrawn.

 Account Portability

Portability of the account from one post office to another is available. A post office monthly income scheme account can be transferred from one post office to another.

Also, customers are free to open any number of time deposit accounts in any Post Office of their choice. POMIS has a flexible approach.

In the event of shifting from one city to another, one can easily transfer the investment to the post office in the current city at no extra cost.

Alternative Investments

If an investor doesn’t want to invest in post office time deposit, it has the following alternatives available, which have same characteristics:-

• SWP from Debt-Oriented mutual fund
• Annuity Plan of a life insurance company
• Senior Citizens Savings Scheme [For Senior Citizens Only]
• Pradhan Mantri Vaya Vandana Yojana [For Senior Citizens Only]

Post Offices have been working in India for a long time and their reach is far and wide. They are able to reach even the farthest of rural areas where banks fail to operate.

Government has made small savings schemes available via post offices. These small saving schemes provide safe investment avenue to the public. By giving the investors goods returns while keeping their money safe, these schemes are easy to manage.

Post Office Time Deposit (POTD) is more suitable for those individuals who are highly conservative about the safety and risk involved in fixed deposits. At times, post office time deposits provide higher interest rates as compared to bank fixed deposit.

Post office time deposit scheme is one of the savings account schemes offered by the post offices to the general public. It provides the option to the account holder to invest their extra and surplus money to the post offices at higher interest rates.

The scheme is backed by the Government of India. Thus, the capital in the POTD is completely protected.

The POTD is not inflation protected. This means that the returns from these deposits are affected by inflation rates.

Age Requirements                            

No age limit is mentioned for opening a time deposit. Account can also be opened in the name of minor.

A minor of 10 years and above age can open the account. A minor of or above the age of 10 years can manage this account.

Investment Conditions

Post office recurring deposit has some investment conditions.

The minimum amount required to be deposited to the post office to open this account is Rs.200.

There is no such limit on the maximum amount that can be deposited. But the amount must be in multiples of Rs. 200.

Interest Rates

​ The interest rate of POTD is set by the government at the start of each quarter in a financial year. Interest is payable annually but is calculated quarterly.

If one doesn’t wish to withdraw the annual interest, they can instruct the post office to re-direct it into the post office savings account or into a post office 5-year recurring deposit account.

There are 2 conditions –

1. The savings account has to be in the same post office
2. This facility will not be available at sub offices and branch offices but only at Head or Departmental Sub Offices.

The rate of interest on deposits is payable on a yearly basis. The following are the different interest rates for different durations:-

Interest Rates on Post Office Schemes September 2018

• 1 year – 6.9% per annum.
• 2 years – 7.0% per annum.
• 3 years – 7.2% per annum.
• 5 years – 7.8% per annum.

Tenure of Deposit

Tenure of deposit is the time duration for which an investor deposits/invests his/her funds. The funds remain locked-in for this tenure (early withdrawal subject to conditions).

The deposits made by the account holders under post office time deposit schemes have minimum tenure of 1 year and maximum tenure of 5 years. Only one deposit can be made in one duration of deposit.

The account holder can enjoy the privilege to extend their deposits upon the time of account maturity.

In the case 2 years, 3 years, 5 years accounts, the amount will be paid either in cash or by cheque. If the maturity amount, including interest, earned is more than Rs 20,000, the payment cannot be made by cash; it can only be made by cheque.

When any time deposit account is matured the account gets automatically renewed for the term it was originally opened. For example,​  2 years time deposit account will be automatically renewed for 2 years. Interest rate applicable on the day of maturity will be applied.

Nomination Facility

Post office time deposit provides nomination facility. Nomination is a facility that enables deposit account holders to nominate an individual, who can claim the proceeds of the deposit accounts or contents of the safe deposit lockers, post the death of the original depositors.

There can be only one nominee per deposit. But, different deposits can be nominated in favour of different individuals.

Eligibility Requirements

Non-resident Indians are not permitted to open Post Office time deposit accounts.

Not all are eligible to open a post office time deposit account. Following are the requirements to be eligible to open this account:-

• Any single adult of Indian nationality can open an account
• A minor of or above the age of 10 years can open and manage this account
• An adult guardian can also open this type of account on behalf of the minor
• Non-Resident Indians are not allowed to open this type of an account
• Group as well as institutional accounts are not permitted

The Post Office Saving Schemes include many products that offer the reliability and risk free return on investment. One of them is Post Office Time deposit

Advantages of Post office saving schemes in India:-

• Easy to invest
• Simple procedure to enroll
• Investments for long-term
• Tax exemption in most schemes
• Risk-free & competent interest rates

The Post Office Time Deposit (POTD) is also known as ‘post office fixed deposit’ or ‘post office term deposit’. It is a convenient alternative to the fixed deposits provided by banks.

The use of post office time deposit has been more in the rural areas as compared to banks’ fixed deposit schemes. One can choose any tenure from 1-5 years for a POTD. The interest rate increases with the number of years you choose to apply for.

Currently there are more than 93,55,825 post office time deposit accounts established across the country.

The account holders have the freedom to open as many accounts as they want in any post office. Single accounts or joint account by two or more individuals can be opened. Single account can be converted into joint accounts. Similarly, joint accounts can also be converted to single accounts.

Account can be opened by cash /cheque. In government records, the date of realization of the cheque will be taken as the date of opening the account.

The proceeds of maturity that are not withdrawn by the account holder are automatically renewed for the original deposit tenure with interest rates applicable on the date of maturity.

Where can a person open POTD?

To invest in a POTD, a person doesn’t have to necessarily open it at a post office closest to where you live. Recently, the central government has authorized all public sector banks and private ones like ICICI Bank, Axis Bank, and HDFC Bank to allow investors to open POTD accounts.

Post Office Time Deposit Suitablility

• For:-

Conservative investors who are looking to invest lump sum amount and earn assured returns on their investment. It is suitable for a person who has goals which are 5 years away.

• Not for:-

Investors who are looking for wealth creation over a long term should not invest in post office recurring deposit. The reason behind this is inflation. The returns from the RD would not be able to beat inflation over a longer period of duration. Post office recurring deposit is also not suitable for investors who want to invest small amounts regularly.

Guaranteed Returns

Post office time deposit scheme guarantees assured returns on the account holder’s investments.

Through this scheme offered by Indian Postal services, an individual can earn a guaranteed return from the money deposited for a fixed period of time.

Interest Rates on Post Office Schemes August 2018

The currents interest rates of POTD are:-

• 1 year – 6.6% per annum.
• 2 years – 6.7% per annum.
• 3 years – 6.9% per annum.
• 5 years – 7.4% per annum.

Taxation

No tax deducted at source (TDS) in post office time deposits. But it doesn’t mean that the interest is tax free. The interest income earned is liable to be taxed as per the applicable tax rate. It’s only the 5-year deposit that carries the tax benefit under section 80C of the Income Tax Act.

The investment under post office time deposit (5 year deposit) is eligible for the benefit of Section 80C of the Income Tax Act, 1961 from 1.4.2007.

With effect from 1 April 2018, any interest received by senior citizens from deposits in post office would be exempt up to Rs 50,000 under Section 80TTB.

Liquidity

Post office time deposit accounts permits the account holders to withdraw funds before maturity. The deposit tenure ranges between 1-5 years. So the account holders get the added advantage to withdraw interest on a yearly basis at compounded rates.

A POTD cannot be closed in the initial 6 months from the date of the first deposit made. If the account is closed after 6 months but before 1 year interest payable on a post office time deposit will be paid. After that, one can prematurely exit with a discount of 1 percent on the interest rate payable.

Account Portability

Portability of the account from one post office to another is available. A post office time deposit account can be transferred from one post office to another.

Also, customers are free to open any number of time deposit accounts in any Post Office of their choice. POTD has a flexible approach.

Alternative Investments

If an investor doesn’t want to invest in post office time deposit, it has the following alternatives available, which have same characteristics:-

• Bank Fixed Deposit
• National Savings Certificate
• Company Deposits
• Debt Mutual Funds