Fixed deposit (FD) is essentially an investment scheme offering a higher rate of interest than a regular savings account. Investors with a low-risk appetite usually prefer FD as the rates are locked-in at the time of booking the deposit and stay the same during the tenure until it matures. This makes it easier to estimate returns at maturity and decide how much to invest even before putting the money in the account.
When investing in an FD, you have two options available cumulative and non-cumulative FD. These are based on payout frequencies. When interest is compounded each year and paid at maturity that is called cumulative FD. Alternatively, in non-cumulative FD, the interest is paid out monthly, quarterly, half-yearly or annually as per your requirements.
Pro tip
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What is a cumulative fixed deposit?
A cumulative fixed deposit enables the investor to get returns in a lump sum at maturity, in other words, until the end of the maturity period, interest is accrued or collected. The interest earned in the year, is reinvested, and added to the initial invested amount.
Investors looking to fulfil important financial milestones like buying a house, saving for a child’s wedding, and more can benefit from the cumulative FD. Consider a cumulative fixed deposit if you want to save a specific sum for the future and can go without regular interest payments into your account.
For an investment of Rs. 3,00,000, the interest earned by a senior citizen in the cumulative fixed deposit is:
Tenure |
Interest rate (p.a.) |
Maturity amount |
12 months |
Up to 7.65% |
Rs. 3,22,903 |
24 months |
Up to 7.95% |
Rs. 3,51,163 |
33 months |
Up to 8.10% |
Rs. 3,74,289 |
44 months |
Up to 8.25% |
Rs. 4,04,895 |
What is non-cumulative fixed deposit?
In a non-cumulative fixed deposit, the investor can select the payout frequency. The interest on a non-cumulative FD can be received every month, every quarter, every half-year, or every year. When submitting your application, you can specify whether you want to receive periodic payments every month, quarter, half-year, or year.
Investors looking to fund recurring expenses like EMI, and rentals can choose to invest in the non-cumulative fixed deposit. Also, senior citizens who have saved their retirement funds in an FD can choose the non-cumulative option to use the regular payouts as paycheques to fund their daily expenses.
For an investment of Rs. 3,00,000, the interest earned by a senior citizen in non-cumulative fixed deposit for monthly returns is:
Tenure |
Interest rate (p.a.) |
Maturity amount |
12 months |
Up to 7.39% |
Rs. 3,22,125 |
24 months |
Up to 7.67% |
Rs. 3,47,412 |
33 months |
Up to 7.81% |
Rs. 3,66,446 |
44 months |
Up to 7.95% |
Rs. 3,90,085 |
As one of the safest investment options, a fixed deposit enables investors to earn interest on their savings for a fixed tenure 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.
You can calculate the returns on your investment with the help of FD Interest Calculator.
How is interest credited for cumulative and non-cumulative fixed deposits?
The interest is credited differently for cumulative and non-cumulative fixed deposit.
In a cumulative FD, your interest is routinely reinvested on the sum of your initial deposit. This indicates that your principal is increased by the interest you earned during the first cycle. In the following cycle, you would receive additional interest income as well as interest on the increasing principle.
For non-cumulative foxed deposit, according to the investor's preferences, the interest is credited to the FD accounts on a regular basis and paid out at the end of each period.
Cumulative FD or non-cumulative FD, which is better for me?
To decide which option is better, you must consider three variables:
- Income
- Liquidity requirements
- Financial goals
Those having long-term goals with fewer liquidity requirements must opt for cumulative FD. However, if you desire to maintain enough liquidity the non-cumulative fixed deposit is a better fit.
You can maximise FD returns by doing the following:
- Invest a larger amount as an initial deposit so it gains more interest over the tenure
- Choose a longer tenure to benefit more from the power of compounding
- Choose cumulative FD as the FD rates are usually higher
- Ladder your investments
- Do not liquidate your FD before the tenure ends to avoid penalty charges
Cumulative vs non-cumulative fixed deposit
The only major difference between a cumulative and non-cumulative fixed deposit is the payout frequency. The former offers a single payout at maturity and the latter provides payout on a monthly, quarterly, half-yearly, and annual basis. You can choose the payout option basis your requirement and investment objective.
Differences |
Cumulative FD |
Non-cumulative FD |
Payout frequency |
Payout at maturity |
Pay out monthly, quarterly, half-yearly or annually |
Rate of interest |
Higher interest rate |
Comparatively lesser than cumulative FD |
Investor type |
Individuals looking to fulfil long-term goals |
Investors that requires sufficient liquidity, senior citizens |
What is Cumulative Fixed Deposit?
A cumulative fixed deposit (FD) is a type of fixed deposit in which interest is accumulated or reinvested back into the deposit. Since both the principal and the interest that has already been earned are taken into account, the amount on which interest is computed for the following period is increased.
What is a Non-Cumulative Fixed Deposit?
As the name suggests, a non-cumulative deposit is an FD in which interest is not accrued over the investment tenor. Instead, it is distributed to you on a regular basis. The main distinction between cumulative and non-cumulative FDs is this.
Where should you invest, cumulative or non-cumulative FD?
Choosing between cumulative or non-cumulative can be determined based on payout frequency, liquidity requirements, and investment goals. For those who aim to save up for long-term goals a cumulative FD is the best choice. Such investors can park a lump sum amount aside for their investments. On the other hand, investors looking to fund recurring expenses should choose non-cumulative FD as it does not curtail liquidity. The payout can be used to fund monthly expenses.
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. Check the you will be served on Bajaj Finance FD.
Difference between Cumulative and Non-Cumulative Fixed Deposit
When investing in a fixed deposit, you may have come across cumulative and non-cumulative FD terms, let us understand how they are different:
| Particulars | Cumulative FD | Non - Cumulative FD |
| Definition | Interest is accumulated through the entire FD tenure | Interest is not accumulated |
| Interest Payout | Paid on maturity | Pain on a monthly, quarterly, half-yearly, or yearly basis |
| Income Flow | No income during the FD tenure | Regular income flow throughout the tenure |
| Reinvestment | Yes, depositor earns interest on interest. This leads to higher interest than non-cumulative FD | No, since the interest is paid out there is no reinvestment option here. Total interest is slightly lesser than the cumulative option |
| Suitable for | Salaried people or those with stable profits | Retirees, housewives, and freelancers |
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Frequently asked questions
A cumulative fixed deposit (FD) is a type of fixed deposit in which interest is accumulated or reinvested back into the deposit. Since both the principal and the interest that has already been earned are taken into account, the amount on which interest is computed for the following period is increased.
In comparison to non-cumulative deposits, cumulative FDs pay higher interest rates. The primary distinction is that interest on a cumulative deposit is paid at maturity, whereas interest on a non-cumulative deposit is paid on a regular basis. Your financial objectives and needs will determine whether a cumulative or non-cumulative FD is preferable.
When it comes to cumulative FDs, interest credits are paid out through an FD account at the end of the investment tenor.
Depending on the payout frequency you select for non-cumulative FDs, the interest credits are transferred to you on a regular basis. This could be a non-cumulative deposit interest that is paid monthly, quarterly, half-yearly, or annually.
The frequency of interest payouts is the main advantage of non-cumulative FDs. For people who want a consistent inflow of cash through consistent interest payments, this is fantastic.
Here is one instance. You put Rs. 1,00,000 rupees into a yearly cumulative fixed-interest investment at a rate of ten percent. As a result, your interest payment at the end of the FD duration would be Rs. 1,10,000.
Non-cumulative FDs are a preferable option if you want to increase your corpus and your wealth for retirement. Cumulative FDs, however, can be a wise choice if you want to dramatically increase your current savings. Though the decision is solely dependent upon your financial objectives.
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