Difference Between Non-Cumulative & Cumulative Fixed Deposit

Fixed deposits are of two types - Cumulative and Non-Cumulative. This bifurcation is done on the basis of interest payout. Whether you choose to receive interest earned regularly or opt for on maturity payment, it determines the type of FD you will have.

There are many popular tools for investment in India and fixed deposit is one of the most popular ones. Fixed deposits are an excellent way to invest your money and grow it at an interest rate that is higher than that of a savings account, for example. For individuals who do not have a high risk appetite, fixed deposits come in as the ideal saviors due to lesser risk. Fixed deposits also have spectrums upon which it is distributed, we will discuss Cumulative and Non-cumulative Fixed Deposits and how you can get the most out of it. However, to understand all these financial jargons, hiring a financial consultancy will be a smart thing to do.

First let us define cumulative fixed deposits. So what does the word cumulative mean? Cumulative is something that is increasing by successive additions. Therefore, as the name suggests in cumulative FDs, the returns are procured at the end of maturity. It uses the concept of compounding interest to re-invest the investment amount until the FD reaches its maturity. One does not receive any payments during or before maturity of the fixed deposit. On the other hand, Non-cumulative Fixed Deposits are the opposite. Here the investor has the possibility to receive payouts on a regular basis like yearly, quarterly, half yearly or monthly. It is one of the best sources to invest your financial (money) savings.

Cumulative fixed deposits are ideal for people who are not dependent on the returns from their fixed deposits for everyday expenses. Since the payout is at the end of the tenure, it is more of a long-term investment. However, non-cumulative fixed deposits are more advisable for people who are dependent on the returns for everyday household or personal expenses.

A financial consultant will always find you options of the best saving accounts, to put it simply these are high interest saving accounts.

Cumulative fixed deposits help you create capital and for instance, non-cumulative are ideal during retirement or for those seeking regular “income”.

For example, you have invested a principal amount of Rs. 10,000 in a non-cumulative FD scheme at an interest rate of 8% per annum for a total of 3 years. This means that monthly you will earn Rs. 66.66 (8% of 10000/12) and that means Rs. 799.92 per year. In a cumulative FD, the interest earned on your investment is re-invested and you get the benefit of compounding return. The returns in a cumulative FD are therefore higher than what you get in a non-cumulative.

By paying heed to these facts and differences, one can decide which tool works best for them. For individuals seeking regular financial support, a non-cumulative FD can come in as a helpful instrument. For those who are more inclined towards long term investments and capital formation, cumulative FD is a good way to go.

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