Difference between cumulative and non cumulative FD

With fixed deposits, you can save money and build wealth over time. Generally speaking, banks let you open both cumulative and non-cumulative fixed deposits. But, do you know the cumulative vs non cumulative FD difference? The major distinction between them is how interest is paid.

Cumulative FD

A Cumulative FD is where the interest earned over the term is not paid out periodically. Instead, interest is compounded (usually annually) and reinvested back into the principal. At maturity, you receive the original principal + all the accumulated interest as a lump sum.

This compounding effect means your money grows faster over time, because you earn interest on interest. Cumulative FDs are especially good if you don’t need regular cash flows and are saving for long-term goals like retirement, buying a house, or other lump-sum needs.

Non Cumulative FD

A Non-cumulative FD pays interest out at regular intervals, monthly, quarterly, half-yearly, or annually, depending on what you select. The principal remains intact until maturity, and you just receive interest periodically. This makes non‐cumulative FDs good for people who want a steady income, retirees, homemakers, or anyone needing regular cash flow.

When choosing between cumulative FD vs non cumulative FD, think about your financial goals and liquidity needs. 

If you can forgo access to interest payments until maturity and your aim is maximum growth, cumulative FDs offer higher returns because of compounding. But if you need a regular income or are relying on interest for day-to-day needs, non-cumulative FDs are more suitable. I hope you found this information useful.

Fixed deposits offer a larger interest return than savings accounts. The two forms of fixed deposits that banks normally let you open are cumulative and non-cumulative. You must read on to learn more about the difference between cumulative and non cumulative FD.

How to define cumulative vs non cumulative FD?

Which FD is suitable for you?

A cumulative FD is appropriate for you if you have stable sources of income and can handle your finances without depending on FD interest, like salaried people. A non-cumulative FD is the best option for retirees, pensioners, and individuals without regular income sources. If they want a constant income to meet their everyday necessities.

Which is better cumulative or non-cumulative FDs?

You can select whichever of these two interest payment options you want. You must choose a non-cumulative fixed deposit if your primary goal is to supplement your current income or obtain a pension after retiring.

You can choose a cumulative fixed deposit without giving it a second consideration. If your investment goal is to increase your current funds at a healthy increasing rate rather than to seek any add-ons.

Now you know about the difference between cumulative and non cumulative FD.