As one of the safest investment options, Fixed Deposit enables investors to earn interest on their savings for a fixed tenor, and at a pre-determined rate of interest. When investing in a Fixed Deposit, you may have come across the terms – Cumulative and Non-Cumulative FD. These are two different types of Fixed Deposit, bifurcated based on how you choose to receive your interest payouts.
For those who choose to invest in a Cumulative Fixed Deposit, the interest on their deposit is compounded each year, and paid at the time of maturity. On the other hand, when you invest in a Non-Cumulative Fixed Deposit, the interest on your deposit is paid out monthly, quarterly, half-yearly, or annually, as per your requirements.
Here’s a table comparing the features of both these Fixed Deposit types, to help you understand these better:
| Particulars | Cumulative FD | Non-Cumulative FD |
|---|---|---|
| Interest Payout Frequency | At maturity | Monthly, quarterly, half-yearly or annual – as per investor’s choice |
| Accumulation of interest) | Done throughout the FD tenor | Not accumulated, as it’s paid out at intervals |
| Periodic income | No periodic income generated | Periodic income generated throughout the tenor |
| Total interest earned | Interest earned is higher, as interest generated throughout the tenor is added to principal, for further compounding | Interest earned is lower, and the payout amount decreases, when payout frequency is high |
| Suitable for | Investors looking to grow their savings, and to create a higher corpus for their investment goals | Investors looking to fund regular expenses, without denting the principal |
The choice between Cumulative and Non-Cumulative depends on your investment requirements. For investors who don’t need regular cash flows, but looking to save up for long-term goals like building a nest egg for retirement, or short-term goals like funding a major expense, it is best to choose Cumulative Fixed Deposit. By investing in a Cumulative FD, such investors can raise enough money to fund their goals.
On the other hand, investors with a need for periodic income can choose to invest in a Non-Cumulative FD, where they can receive payouts on a periodic basis. The payouts received on these deposits can be seen as substitutes for regular salaries, which can help retirees fund their monthly expenses easily.
