Difference between cumulative and non-cumulative fixed deposit
As one of the safest investment options, a fixed deposit enables investors to earn interest on their savings for a fixed tenor at pre-determined interest rates. When investing in a fixed deposit, you may have come across cumulative and non-cumulative FD terms. These are two different types of fixed deposits based on payout frequency.
The interest is compounded each year and paid at maturity in a cumulative fixed deposit. On the other hand, in a non-cumulative fixed deposit, the interest is paid out either monthly, quarterly, half-yearly or annually, as per your requirements.
Where should you invest, cumulative or non-cumulative FD?
Choosing between cumulative and non-cumulative fixed deposits entirely depend on your investment and liquidity requirements. It is best to select a cumulative fixed deposit for investors who don’t need a regular cash flow but want to save up for long-term goals like building a nest egg for retirement or short-term goals like funding a significant expense. Such investors can raise enough money to fund their objectives by investing in a cumulative FD.
On the other hand, investors looking to fund recurring expenses can choose to invest in a non-cumulative FD, where they can receive payouts regularly. The payouts received on these deposits can be used to fund monthly expenses.