Better Comparison of Post Office RD with Monthly Income Scheme

Fixed Deposits v/s Savings Accounts v/s RD Accounts:

Saving money is the best way to secure your future. Saving alone doesn’t help money grow or beat inflation. The best way to secure your future is by investing your money. In India there are various financial instruments that help you grow your money as well as earn inflation beating returns. Listed below are the safest options of investing money.

Savings Bank Account:

A savings account is the most basic account offered by all banks in India. The savings account provides the customer with the facility to deposit as well as withdraw as and when required.  Savings accounts offer interest on the deposit, and are the safest way to grow money along with ease of withdrawal.

There is no time limit or rules on how much money must be maintained in the savings bank account. Currently, the banks are offering an interest rate of 3% to 6% a year on daily or saving bank accounts. The interest earned on these accounts is determined on the minimum average balance maintained in the account. The banks are free to decide the rate of interest on the savings bank account as per the RBI and so the rate of interest varies across banks. Savings account is an ideal option where a depositor can keep money for the future. The savings account not only offers interest on the deposited amount, but also offers liquidity which is why it is very popular among the people of India.

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SEE ALSO: Savings Account

Better Comparison of Post Office RD with Monthly Income Scheme 

FD account:

A fixed deposit refers to a type of investment where the depositor can invest their money for a specified time period and the money is deposited as a lump sum. The money is locked-in till maturity and the deposited amount continues to earn interest as specified by the bank.

Unlike savings bank accounts, the money cannot be taken out before maturity. Premature withdrawal is allowed, but attracts a penalty. Fixed deposits are one of the safest investment options and the best way to grow your money. The returns are guaranteed and are independent of market fluctuations. The fixed deposit offers slightly higher rate of interest than savings bank account. Currently, banks are offering an interest rate of 6% to 8% a year on fixed deposits.

Recurring account:

The Recurring deposit is an investment option offered by banks or Post offices, where regular deposits are made each month for a fixed time period. Recurring deposits are the same as fixed deposits, except that in an RD, the money is deposited each month.  The RD can be availed by all citizens as the minimum amount required to open an RD account is just Rs 10.

A Recurring Deposit helps build up sufficient corpus on maturity. Interest rate in this kind of deposit scheme is compounded, quarterly. However, the interest earned on the recurring deposits is added to taxable income and taxed as per tax brackets.

PORD vs POMIS:

Both the schemes are offered by the post office. Both the schemes are safe and involve no risk. The investment option that you choose depends on financial goals and how you plan to achieve them. There are certain benefits that the depositor receives by investing in either of the schemes. Summarized below are the features and benefits of both the investment schemes:

POMIS:

The post office monthly income scheme or POMIS is a scheme where a person can invest money and earn a fixed amount of interest each month. The scheme is offered by the Indian postal service and is backed by the government of India.

• An individual can opt to open a POMIS account with a minimum amount of Rs 1500. There is no prescribed upper limit. However, the invested amount must be in multiples of Rs 1500.
• The time period of this scheme is 5 years from the date of opening the account.
• In case of a joint account, each holder has equal share.

• The account holder can also add a nominee.
• The post office monthly income scheme can be held jointly or individually.
• The POMIS account can be freely transferred across post offices.
• There is no specified limit on the number of POMIS accounts held singly or jointly. The accounts are subject to maximum cumulative balance criteria. Cumulative maximum balance for individual account is Rs 4.5 lakhs and for jointly held accounts it is Rs 9 lakhs.
• Interest is directly credited to the post office savings account on a monthly basis.
• The post office monthly income scheme does not enjoy Section 80C deductions and the income and the maturity amount is subject to tax.
• The POMIS scheme continues to earn interest after the maturity period, if the amount is not withdrawn by the account holder.
• It is a small saving scheme that allows the investor set aside a specific amount each month and guarantees a return of 8.5% a year in the form of fixed monthly income.

Post Office RD:

The post office recurring deposit is same as the bank recurring deposit. The post office recurring deposit is a 5 year scheme that allows the depositor build a corpus by depositing money on a monthly basis.

• An individual can opt to open a POMIS account with a minimum amount of just Rs 10. There is no prescribed upper limit. However the invested amount must be in multiples of Rs 5.
• The account holder can add a nominee to the post office RD account and joint RD can also be opened by two individuals.

• The account can be opened by cheque or cash payment. In case payment is made by cheque, the date of presentation of the cheque will be considered as the date of deposit.
• The PORD account can be freely transferred from one post office to another.
• The current interest rate on PORD is 7.3% per annum (From 1.1.2019 onwards) which is compounded quarterly.
• Premature withdrawal is allowed only when a minimum of 12 monthly deposits are made. So, the RD account must be active for a minimum of 1 year to avail this facility.
• You cannot withdraw the full amount. Only 50% of the deposits can be withdrawn from the RD account.
• The amount of money withdrawn can be repaid either through EMIs or as a lump sum before the maturity of the PORD.
• A maximum of 4 defaults are allowed within the tenure of the RD. In case the subsequent deposits are not made on or before the due date, a default fee is charged at Rs 0.05 for every Rs 5.

SEE ALSO: Recurring Deposit

Investments for Regular Monthly Income:

There are other riskier investment options that can help generate income from investments. These are volatile investments and the returns depend on market fluctuations. However, if invested for a longer term they may prove beneficial. One such popular investment is:

SIP with mutual funds: SIP stands for systematic investment plans. It allows you to invest a predefined amount for a fixed time period which can be weekly, quarterly, monthly and yearly. One can start SIP with mutual funds even with a minimum investment of Rs 500. The returns depend on the mutual fund you choose and the time period of investment.

There are various investment options offered by the banks in India. The investment that you choose depends on your income and financial goals. You may choose to invest in safe investments like fixed deposits, NSC, PPF or POMIS. These investment options are risk free and give guaranteed returns. Those with a higher risk appetite can go for investment options like mutual funds or equities. These are riskier investment avenues, but offer greater returns.

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