What is Cumulative Fixed Deposit (FD): Meaning and Returns

Explore the benefits of investing in cumulative fixed deposits, how they function, and how they can help grow your wealth over time.
Cumulative Fixed Deposit (FD)
3 mins
3 April 2024

Fixed deposits are a popular investment option for those looking for a low-risk, stable return on their investment. Among the different types of fixed deposits, cumulative fixed deposit is a unique one. A cumulative fixed deposit is a type of fixed deposit in which the interest earned on the principal amount is compounded and paid along with the principal amount at the time of maturity. This means that the interest earned each year is not paid out separately but added to the principal amount. The total interest earned is then paid out at the time of maturity.

What is a Cumulative Fixed Deposit?

A cumulative fixed deposit is a type of fixed deposit where the interest earned on the principal amount is compounded annually, and the total amount (principal + interest) is paid out on the maturity of the deposit. In other words, the interest earned is not paid out periodically (monthly, quarterly, half-yearly, or yearly), but instead, it gets added to the principal amount. The interest is then calculated on the new amount for the subsequent year, and this process continues until the end of the deposit’s tenure. Cumulative fixed deposits are a popular choice for those looking for a long-term savings option with guaranteed returns.

How to maximise returns with cumulative fixed deposits?

To maximise returns, it is essential to choose the right financial institution. You should look at the interest rates offered by different financial institutions and choose the one with the higher interest rate and the highest safety. This is where Bajaj Finance outperforms. With our higher interest rates and [ICRA]AAA(Stable) and CRISIL AAA/STABLE ratings, your investment will grow timely and securely. However, you should choose a tenure that suits your investment goals. Longer tenures generally offer higher interest rates. And with Bajaj Finance Fixed Deposit, senior citizens can earn an extra up to 0.40% p.a. interest rate on the current rate. Our online FD interest calculator helps you in calculating the interest rate, which can be earned on your investment after choosing the preferred tenure.

Difference Between Cumulative and Non-Cumulative FD

The main difference between cumulative and non-cumulative fixed deposits is in the payment of interest. In a cumulative fixed deposit, the interest earned is compounded annually and paid out at the time of maturity. In non-cumulative fixed deposits, the interest earned is paid out at regular intervals, such as monthly, quarterly, or semi-annually. Non-cumulative fixed deposit is suitable for those who require regular income from their investment.

So the question is, where to invest?

Cumulative or non-cumulative fixed deposit? The choice between cumulative and non-cumulative fixed deposits depends on the investment goals. A cumulative fixed deposit is suitable for those looking for a long-term investment, as it offers a higher return at the time of maturity. Non-cumulative fixed deposit is suitable for those who require regular income from their investment.

A cumulative deposit does not pay out regular interest, it is appropriate for someone who does not rely on interest income. Individuals with steady earnings, paid professions, or business owners can create a cumulative deposit account. Regardless of the interest payment made at maturity, they can also determine the interest-earning period.

A cumulative fixed deposit is a type of fixed deposit that compounds the interest earned on the principal amount and pays out the total interest at the time of maturity. Individuals who want to save for a specific purpose might open a cumulative fixed deposit account. A non-cumulative account, on the other hand, is appropriate for people who want to make a consistent income from their extra cash. Finally, selecting a specific deposit account that meets your financial needs is critical. Open a Bajaj Finance Fixed Deposit now and take a step towards creating an optimum financial goal for your future needs.

Benefits of Cumulative FDs

  1. Higher interest earnings: The interest earned is compounded, leading to a higher payout at maturity compared to regular FDs.
  2. Simplicity: With interest reinvested, there's no hassle of tracking periodic interest payouts, providing a straightforward investment experience.
  3. Long-term planning: Cumulative FD is ideal for those with a long-term investment horizon, as the compounded interest significantly grows over time.
  4. Financial discipline: Investors are encouraged to stay invested until maturity, fostering disciplined financial planning.

Calculate your expected investment returns with the help of our investment calculators

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Frequently asked questions

What is the Digital FD offered by Bajaj Finance?

Bajaj Finance has launched a new FD type called "Bajaj Finance Digital FD" for a period of 42 months. Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a. for senior citizens and for the customers below the age of 60 they are providing up to 8.60% p.a. The Digital FD can be booked and managed only through the Bajaj Finserv website or app.

Who should choose a cumulative fixed deposit over a regular fixed deposit?

Ideal for long-term investors, interest is compounded and paid at maturity, offering higher overall returns.

When it comes to fixed deposits, how is noncumulative interest credited?

Noncumulative interest in fixed deposits is typically credited at regular intervals, such as monthly, quarterly, or annually, depending on the chosen payout frequency. This provides a consistent income stream for investors.

For fixed deposits, how is cumulative interest credited?

Interest in cumulative fixed deposits is compounded and credited at the end of the deposit tenure, along with the principal amount. Investors receive the entire maturity amount in a lump sum.

Who should choose a noncumulative fixed deposit over a cumulative fixed deposit?

Individuals looking for a regular income stream, such as retirees, should opt for noncumulative fixed deposits.

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As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.