Monthly Interest on Fixed Deposit: Everything You Need to Know

When considering investments, one common question that arises is whether it is possible to receive monthly interest income on a Fixed Deposit (FD). Is it possible in the post office, and if so, how does it work? In this comprehensive guide, we will explore the Monthly Income Scheme (MIS) offered by post offices and other related aspects, such as TDS deductions, investment limits, and benefits.

Overview of the Monthly Income Scheme (MIS)

Post offices in India have introduced the Monthly Income Scheme (MIS) to provide investors with the convenience of receiving monthly interest on their FDs. Unlike traditional FDs where interest is paid only at maturity, MIS allows you to receive regular interest payments, enabling you to manage your finances better.

Investment and Interest Rate

While regular FDs accept deposits ranging from a minimum of Rs. 1,000 to a maximum of Rs. 2,000,000 (2 lakhs), the MIS scheme set by the post office offers a more flexible range. You can invest up to Rs. 4,500,000 (4.5 lakhs) as an individual, and up to Rs. 9,000,000 (9 lakhs) for a couple. The interest rate on MIS is revised every quarter on the 1st of January, April, July, and October. However, once you have accepted the MIS scheme, your FD will continue to earn the same interest rate that was fixed at the time of acceptance.

Tax Deduction at Source (TDS)

It’s important to note that when it comes to MIS, TDS (Tax Deduction at Source) rules are the same as those applied by banks. If the annual interest income is likely to exceed Rs. 40,000 for a regular individual and Rs. 50,000 for senior citizens, 10% TDS is applicable. This TDS is automatically deducted by the post office or the bank when the interest is credited to the depositor's account. If TDS is not deducted by the post office, you must declare it at the time of filing your income tax returns.

Opening an MIS Account

To open an MIS account with the post office, you can visit a nearby post office counter. You will need to provide necessary documents and follow the instructions as per the prescribed procedure. Additionally, you will need to have a savings account in the post office, as the MIS interest will be credited to this account monthly.

Steps to Open MIS Account

Visit a nearby post office counter during working hours. Fill out the requisite forms and provide necessary documentation. Specify the amount you wish to invest and the terms of the MIS (such as the investment period and interest rate). Open a savings account in the post office if you don't already have one. Provide instructions to credit the interest amount monthly into your savings account.

Is Monthly Interest Possible on Traditional FDs?

Typically, with regular Fixed Deposits, interest is paid only at maturity. However, there are some banks that offer term deposit accounts that allow monthly interest payouts. To benefit from this, you will need a specific term deposit account with the bank and instructions to credit the interest amount monthly into your savings account. While similar options may not be available with the post office, the MIS scheme does offer this benefit.

Final Words

Receiving monthly interest on Fixed Deposits is indeed possible through the Monthly Income Scheme (MIS) offered by post offices. This scheme allows you to invest a maximum of Rs. 4,500,000 as an individual and Rs. 9,000,000 as a couple. TDS is applicable if your annual interest income exceeds the prescribed limits. While you can open an MIS account at a post office, it's crucial to understand the TDS rules and follow the necessary procedures to ensure a smooth investment experience.