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.