The basic difference between a Cumulative and a Non-Cumulative FD is the interest payout pattern.
How they differ?
In a Cumulative Fixed Deposit interest is compounded every quarter or year and paid out at the time of maturity. However, in a Non-Cumulative FD, interest is paid out monthly, quarterly, half-yearly or annually, depending on the choice of investor.
Cumulative FDs help you build a corpus by saving a large amount and getting compound interest on that. On the other side, Non-cumulative FDs help investors get a regular payout of interest and use for their daily needs.
So, if you are investing to save and grow your money, opt for a Cumulative FD. But if you are in need of a regular income (such as a pensioner), opt for a Non-Cumulative FD.
Both FDs are a great investment tool and pay better returns than a savings account. However, the interest rates and maturity amount are higher if you opt for a Cumulative FD.
Here’s how much the interest differs when you choose a Cumulative vs. a Non-Cumulative FD:
Cumulative Non-Cumulative (Quarterly)
Deposit amount Rs.5,00,000 Rs.5,00,000
Tenor 5 years 5 years
Interest rate 7.85% 7.63%
Interest earned Rs. 2,29,576 Rs. 1,90,750
Maturity amount Rs. 7,29,576 Rs. 6,90,750