Under Post Office Monthly Income Scheme, you can deposit a maximum Rs 4.5 lakh for five years at the current interest rate of 7.6%. The interest accrued under the scheme is provided to the depositor as monthly income. At 7.6% per year, Rs 4.5 lakh will earn a total interest amount of around Rs 1,71,000 in five years. The amount that you will get every month by depositing Rs 4.5 lakh in this scheme will be Rs 1,71,000/60=Rs 2850. After five years, you will be able to withdraw your initial deposit of Rs 4.5 lakh as well. In case, you don’t need the monthly income support, you can use other schemes of post office to maximise your returns after five years.
As per Post Office rules, you can deposit the interest amount earned from monthly income scheme in Post Office Savings Account. This deposit in savings account will earn 4 per cent interest. However, you can get better returns by depositing the amount in savings account in Post Office Recurring Deposit (RD) scheme, which offers 7.2 per cent interest.
What rules say
Post office rules say that you cannot directly deposit interest earned from monthly income scheme in RD. But you are allowed to deposit the interest amount in the Post Office Savings Account and from there to RD. Responding to a question on whether Monthly Income Scheme (MIS) interest can be credited to Recurring Deposit (RD) account, Post Office says on its official website: "No. There is no provision. Interest amount can be credited to SB account and after that from SB to RD is permissible."
Final amount in your hand
You know now that monthly income from Post Office Monthly Income Scheme can be deposited in Savings account and then to Post Office RD. After depositing Rs 4.5 lakh in monthly income scheme, you will start getting the interest amount (Rs 2850) a month after opening the account. You can deposit this amount every month into Savings account and then into RD as per rules.
Depositing Rs 2850 every month in RD at 7.2 per cent will fetch you approximately Rs 35,000 as interest amount on the principal of Rs 2850×60 = Rs 1,71,000 in next five years. The interest rate on RD is compounded quarterly.
The monthly income account will mature in five years, while your RD account will mature after five years and one month if you open the account now. After the completion of five years and one month, the total amount you would be able to accumulate by using the trick discussed above will be Rs 4,50,000+Rs1,71,000+Rs35,000 = Rs 6,56,000.