When investing in a fixed deposit, the interest is compounded regularly, and you have the option to receive your interest at maturity, or on a periodic basis. For those looking for steady growth of capital, investing in a cumulative fixed deposit is a great option, as you get a lumpsum amount at maturity. The amount you receive at maturity, includes your principal amount and the total interest accumulated. The tenor for this FD can range between 12 and 60 months.
While cumulative FD enables you to get your returns at maturity, non-cumulative FD helps you fund recurring expenses as you get interest payouts periodically. You can choose to get interest payouts on a monthly, quarterly, half-yearly and annual basis.
The interest generated on the deposit is paid out on a periodic basis, in case of non-cumulative FD. On the other hand, the interest gets accrued to the principal amount and earns more interest, in case of cumulative FD. Hence, this ensures higher growth of capital when you invest in a cumulative FD.
Choosing between cumulative and non-cumulative FD can be tricky, but it is important to understand your own requirements. For those with a need to get periodic income, investing in a non-cumulative fixed deposit can be a great choice. However, if you’re looking to grow your capital over a specific period, consider investing in a cumulative fixed deposit.
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