Combine MIS with post office recurring deposit and earn higher returns — calculation here

While post office monthly income scheme (MIS) returns are fixed, you can maximise the overall return from the account by starting a recurring deposit (RD) using the monthly payouts from it. The current rate of interest offered in MIS is payable monthly. However, if you let the interest amount accumulate, the same will not earn any additional interest.

But, if you withdraw the monthly interest payout from MIS and invest it in RD, the returns can be increased.

Let’s understand with an example:

Suppose you invested Rs 4.5 lakh in the post office MIS scheme, then you will earn a total interest amount of Rs 1,48,500 in five years or, say, a monthly interest of Rs 2,475.

The formula for calculating the same is:

POMIS Monthly Interest = 4,00,000 * 6.60%100/12 = INR 2,200.

(The prevailing interest rate for POMIS at the time of investment is 6.60 percent and its maturity period is five years. The maximum investment limit for MIS is Rs 4.5 lakh in a single account and Rs 9 lakh in a joint account.)

Now, if you withdraw this monthly payout and invest in RD, you will earn some additional interest.

Notably, post office schemes do not allow the transfer of MIS interest into the RD account. Still, the same can be done by transferring the interest amount to the post office savings account (that can be directed through auto credit) and from there into RD.

The returns on RD can be calculated with this formula:

M = R/1-(1+i)(-1/3)

where M = total value of maturity, R = amount of monthly deposits, n = time period in years, and i = interest rate offered

So, in this case, the returns will be:

M = 2,475 /1-(1+5.8)(-1/3)

This will amount to Rs 24,000.

Currently, the interest rate on post office recurring deposit is 5.8 percent and the maturity period is, i.e. five years. The interest rates are compounded quarterly here.

After combining MIS and RD, the total interest income after five years will be Rs 1,72,500 (Rs 24,000 + Rs 1,48500). Hence, the returns are maximised.