Post Office MIS vs Bank Monthly Payout FD — Both give you money every month, but they work differently. POMIS is a government-backed plan with a fixed 5-year term and set deposit limits. A bank monthly FD is a regular fixed deposit that pays interest every month, with flexible tenures and bank-specific rates. This 2025 guide explains payouts, limits, taxes, and early-closure rules in simple terms—no personal financial advice.
At-a-Glance: POMIS vs Bank Monthly Payout FD
Quick, side-by-side cards that explain how each monthly-income option works—tenure, payouts, limits, safety, and taxes—so you can understand the basics in seconds.
Post Office Monthly Income Scheme (POMIS)
A simple, government-backed plan that runs for 5 years and pays you interest every month. You invest once within set deposit limits, the rate is locked on opening day, and payouts are predictable—good for anyone who wants steady, worry-free cash-flow.
- Nature & backing: Government small-savings plan with sovereign support.
- Tenure & payout: Fixed 5-year term; monthly interest at the rate locked on account opening.
- Deposit size: Defined caps for single and joint accounts.
- Tax/TDS: Interest taxable; no TDS deducted—declare in ITR.
- Exit & access: Premature closure allowed after 1 year with penalty; processes are mostly branch-based.
Bank Monthly Payout FD
A regular bank fixed deposit where you choose to receive the interest monthly instead of letting it compound. You get flexible tenures, bank-specific rates (often higher for seniors), easy online management, and your principal back at maturity with monthly credits along the way.
- Nature & structure: Regular FD with monthly interest payout; principal returned at maturity.
- Tenure & payout math: Flexible tenures; monthly credit is a discounted equivalent (no monthly compounding).
- Deposit size: Typically no statutory upper cap (bank policies may vary).
- Safety: DICGC-insured up to the legal limit per bank, per depositor.
- Tax/TDS & access: Interest taxable; TDS may apply beyond thresholds; fully online opening and management.
Direct comparison: the key differences at a glance
As of 2025. Each card shows the same feature side-by-side for POMIS and Bank Monthly Payout FD. Designed for easy reading on mobile—no horizontal scrolling.
Issuer & Safety
Department of Posts; sovereign-backed small-savings scheme.
Individual banks; DICGC cover up to ₹5 lakh per depositor, per bank (principal + interest).
Current Interest Rate
7.4% p.a., paid monthly. Rate is booked on opening; small-savings rates are reviewed quarterly.
Varies by bank, broadly ~6%–7.5% p.a.; seniors often get +0.50%. Monthly payout is a discounted equivalent of the quarterly rate.
Investment Limits
₹9 lakh (single) / ₹15 lakh (joint).
Typically no statutory upper cap; banks may set internal thresholds for certain rate slabs.
Tax Implications
Interest is fully taxable. No TDS is deducted; you must declare and pay tax in your return.
Interest is fully taxable. TDS applies if annual FD interest crosses ₹50,000 (non-seniors) or ₹1,00,000 (seniors).
Tenure
Fixed at 5 years.
Flexible: a few months up to 10 years (bank-specific).
Premature Withdrawal
Not allowed in first 1 year. After that: 2% deduction (years 1–3) and 1% (years 3–5) from the deposit on closure.
Typically allowed after a lock-in with a penalty (~1%) or lower applicable rate; varies by bank and tenure.
Access & Convenience
Primarily branch-centric; some services are digitised, but opening/closure typically needs the post office.
Highly convenient: open, view, and manage online via net banking or app; monthly interest auto-credited.
What “discounted monthly payout” means in practice
When banks pay FD interest monthly, the monthly credit is calculated as the present-value equivalent of the interest that would have accrued over a longer interval (usually a quarter). In simple words, the amount you receive each month is usually a bit less than “annual rate ÷ 12” because you’re being paid earlier and more frequently.
- Monthly payout ≠ simple pro-rata: it’s a time-value adjustment, not just rate/12.
- No monthly compounding: monthly-payout FDs are non-cumulative; interest isn’t added to principal.
- Why it matters: plan cash-flow using the bank’s quoted monthly amount, not a rough divide-by-12 estimate.
More detail (optional)
The bank computes a monthly credit so that paying you earlier doesn’t overstate the return versus a quarterly schedule. This is why two FDs with the same nominal rate can show slightly different take-home amounts if one is monthly-payout and the other is cumulative.Premature Withdrawal Penalties 📉
This table highlights how early-closure rules work in each option. It’s useful if you might need access to your funds before maturity.
| Time of Withdrawal | Post Office MIS Penalty | Typical Bank FD Penalty |
|---|---|---|
| Before 1 year | Not permitted in the first year (no premature closure). | Varies by bank; often no interest is paid, and the principal is returned. |
| Between 1 to 3 years | 2% of the principal deducted on closure. | Rate reduction or a penalty of about 1% on the applicable interest rate. |
| Between 3 to 5 years | 1% of the principal deducted on closure. | Rate reduction or a penalty of about 1% on the applicable interest rate. |
| After maturity | No penalty. | No penalty. |
The Expert’s Verdict: Scenario-Based Analysis
Scenario 1: Safety and Simplicity are #1 Priority 🔒
If your first concern is maximum safety with almost zero decision fatigue, POMIS fits the brief. The sovereign guarantee and fixed monthly credit make it easy to plan cash flow. You don’t have to shop across banks or track changing FD grids. The trade-off: deposit caps (₹9 lakh single/₹15 lakh joint) and branch-centric processes. For someone who values a “set it and forget it” approach, this structure is reassuring and predictable.
Scenario 2: Convenience and Flexibility Matter More 📲
If you want end-to-end digital convenience, the ability to choose your tenure, and the option to hunt for a sharper rate, a monthly-payout FD is often a better operational fit. Banks let you open online, route the monthly credit directly to your savings account, and sweep or ladder across terms. With senior-citizen add-ons, some depositors can achieve a meaningfully higher nominal rate than MIS.
Scenario 3: You’re Tax-Sensitive 💰
Both products are fully taxable at your slab. The differences are operational:
- POMIS: No TDS is deducted by the post office. You must track and declare the interest in your return.
- Monthly-payout FD: Banks deduct TDS automatically once your annual FD interest crosses the threshold. That reduces paperwork for many depositors, though TDS is not the final tax—you still reconcile in your return.
Scenario 4: You Might Need Early Access 🏃♀️
POMIS has hard-coded penalties: nothing in year 1; then a 2% deduction on principal if you close between year 1 and year 3, and 1% if you close between year 3 and year 5. Banks also penalise premature FD closure, usually via rate reduction or a ~1% penalty—but the exact rulebook differs. If early exit is a real possibility, read the fine print for your chosen bank.
Scenario 5: Ticket Size 💼
If you intend to deploy more than ₹15 lakh and want it all in one instrument, POMIS’s statutory cap becomes the binding constraint. Banks, by contrast, typically don’t impose such a statutory ceiling. Large allocators often spread across multiple banks for both rate discovery and DICGC coverage segmentation.
Side-by-Side Comparison of Key Features 📊
A concise, at-a-glance table comparing Post Office MIS and Bank Monthly-Payout FDs across the core points from this guide. Helpful for seeing the trade-offs in one place.
| Feature | Post Office Monthly Income Scheme (POMIS) | Bank Monthly Payout FD |
|---|---|---|
| Safety | High (Sovereign Guarantee) | High (DICGC insured up to ₹5 lakh per bank) |
| Interest Rate | Fixed rate for the entire 5-year tenure. | Fixed for your chosen tenure; varies by bank & term. Often higher for senior citizens. |
| Investment Limit | ₹9 lakh (single), ₹15 lakh (joint). | No statutory cap; large deposits possible (bank policies may apply). |
| Taxation | Interest fully taxable as per slab; no TDS deducted (declare in ITR). | Interest fully taxable as per slab; TDS may be deducted if interest exceeds the limit. |
| Tenure | Fixed at 5 years. | Flexible—typically 7 days to 10 years. |
| Liquidity | Premature withdrawal after 1 year with a penalty. | Premature withdrawal allowed with penalty; rules vary by bank. |
| Process | Primarily branch-centric. | Can be opened and managed digitally (online/app). |
| Ideal For… | Safety-first investor who prefers a simple, fixed option. | Flexible investor who shops for rates and uses digital banking. |
Commit to an informed choice
Use this simple checklist to match each option to your comfort with safety, access, taxes, and how you like to manage money day-to-day.
Educational summary only. It does not consider individual circumstances, risk tolerance, or cash-flow needs. For personal guidance, consult a qualified financial or tax professional. The goal is peace of mind: choose the option that matches how you live and plan.
Conclusion
Post Office MIS vs Bank Monthly Payout FD are both dependable ways to receive money every month, but they serve slightly different needs. POMIS offers sovereign-backed stability, a fixed 5-year term, and clear deposit limits—great for simple, predictable cash-flow. Bank monthly-payout FDs provide digital convenience, tenure choice, bank-specific rates (often higher for seniors), and automated TDS handling—while monthly credits are calculated as a discounted equivalent without compounding.
Whichever you consider, focus on the essentials: safety and deposit caps, the exact monthly amount quoted by the bank or post office, penalties for early exit, and how the interest will be taxed for you. Matching these rules to how you manage money day-to-day is the real key to peace of mind.
- Confirm today’s rate and whether it stays fixed for your full tenure.
- Check limits & coverage: POMIS caps; bank deposit insurance rules.
- Read premature-closure terms before you deposit.
- Know your tax position: MIS interest is taxable (no TDS); banks may deduct TDS above thresholds.
- Verify the quoted monthly credit you’ll actually receive in your account.
This summary is educational only and doesn’t consider individual circumstances. For personalised guidance, speak with a qualified financial or tax professional before acting.
About Seva Funds & Important Disclosures
About the Author
Prashant SN
Education: MCom (Master of Commerce)
What I enjoy: Finance calculations and building easy tools for everyday decisions
Hi, I am Prashant SN. I studied MCom and I am interested in finance calculation. I started Seva Funds to share clean, fast calculators and no-nonsense explanations for India.
Disclaimer
This article is for informational and educational purposes only. It is not financial, tax, legal, or investment advice, and it does not take into account your personal situation. Interest rates, limits, tax rules, and institutional policies can change; please verify the latest details with official sources or your institution before acting.
Examples are illustrative. Tax treatment depends on your facts and the law in force. We make reasonable efforts to keep content accurate but do not guarantee completeness or suitability. Seva Funds does not sell financial products and is not responsible for decisions made based on this content. Consult a qualified financial or tax professional for advice tailored to you.
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