Know the pitfalls in the post office

If you’re a 20-something, chances are you don’t know how banking used to be in the bygone era. Savings accounts came without ATM cards.

If you needed cash, you had to trudge to the branch to fill in a withdrawal slip. And you had to approach the same branch in which you opened your account for any additional service, even if you had moved to the other end of the city.

Well, when you invest in any post office scheme today, you can count on precisely the same old-world experience. If you want to withdraw the monthly interest from the Monthly Income Scheme, or the MIS, you’ll have to visit the post office that ‘holds’ your account. Barring the PPF account, other small savings schemes offer no online access.

As you eye post office schemes for their mouth-watering returns and safety, you may also want to factor in the legwork that goes with it. Old-timers will tell you that the servicing leg of small savings schemes has definitely gotten worse in the last two to three years. Post offices do employ agents who are meant to maintain your passbooks and complete the transactions; but with the Government trimming their commissions in 2011, many agents have quit or moved to greener pastures.

So, you really can’t avoid that expedition to the post office and the long wait in the queue when you invest. Also, be prepared to repeat this if you want to verify the interest credit or get your passbook updated (Yep! The post office still uses passbooks).

Then, there are the myriad rules about withdrawing your money and taking loans against your investment, designed to flummox you. Sample the rules for withdrawal from the PPF.

Other long-term instruments, such as tax-free bonds, allow you to simply cash out on the stock exchanges. But it is not that simple with the PPF.

To become eligible to withdraw money, you need to wait for five years from the end of the year in which you invested. After that, the withdrawal is limited to 50 per cent of the balance at the end of the fourth year ‘immediately preceding the year in which the amount is to be withdrawn’, or the balance at the end of the preceding year, whichever is lower!

Here, closing your account becomes a better option.

You also need to note that post office investments, unlike most bonds, cannot be held in paperless or electronic form. You need to safe-keep the NSC paper certificate as this is often the only proof of your investment. Plus, perish the thought of holding all your post office investments in one consolidated account. Every investment — the PPF or a recurring deposit or the MIS — requires you to maintain a separate passbook.

But India Post is trying to address such convenience and access issues through its ongoing modernisation efforts which were initiated in 2012. At the core of this exercise is a computerised core banking solution (CBS) aimed at replicating the services banks offer to customers today — ATM, internet, phone and mobile banking.

This could eventually allow you to operate your account from any post-office on the CBS network, regardless of where the account is based. Facilities for NEFT and RTGS transfers are expected, too. Incidentally, the first of such ATMs was opened earlier this month in Delhi. Plans to link these with bank ATMs are also on the cards. If not us, our children will perhaps see the benefit of these efforts.