The distinction between non-cumulative and cumulative Fixed Deposit

Fixed deposits (FDs) are a great way to save money because they protect your principal amount and offer a competitive rate of return. However, you must be aware of the distinctions between cumulative and non-cumulative FDs before selecting one.

What are FDs that are cumulative and non-cumulative?

Cumulative FD: In a cumulative FD, interest is accrued and paid out at maturity along with the principal amount. This implies that on the maturity date, you will receive the whole interest.

Non-cumulative FDs: The interest on the deposited money is paid out on a regular basis at non-cumulative FDs. These intervals can be monthly, quarterly, half-yearly, or annually. In this instance, the principle is paid at maturity, and the interest is paid based on the set frequency and deposit term.


These are a few benefits associated with each type.

Benefits of cumulative FDs :

1. Higher interest rate: Compared to non-cumulative FDs, cumulative FDs typically have a higher interest rate.

2. Higher return: At maturity, you receive a higher return because the interest is compounded during the term.

3. Increased liquidity: Cumulative FDs promote disciplined saving and are perfect for long-term objectives.

Benefits of non-cumulative FDs :

1. Consistent income: Because non-cumulative FDs pay out on a regular basis, they are appropriate for people who need a consistent source of income.

2. Flexibility: Depending on your needs, you can select how often interest is paid out.

3. Better tax savings: Since the returns from non-cumulative FDs are distributed over several fiscal years, they may help with tax savings.