A Fixed Deposit is categorized into a Cumulative vs Non-Cumulative FD depending on the interest payout frequency. Cumulative vs Non-Cumulative FD is a common comparison for investors who want to choose the right fixed deposit payout option based on their income and investment goals. In a cumulative FD, interest is reinvested and paid along with the principal at maturity, helping your money grow faster. In contrast, a non-cumulative FD pays interest at regular intervals such as monthly, quarterly, or annually, making it suitable for those who need a steady income. Understanding the difference between cumulative and non-cumulative FD options will help you decide which one aligns better with your financial needs and cash flow requirements.
This blog shares with you the differences between cumulative vs non-cumulative fixed deposits in detail, helping you decide which one is right for you.
Fixed deposits remain a cornerstone of Indian investment portfolios, with 45% of urban households considering them essential for financial security. When investing in an FD, the first decision you’ll face is choosing between cumulative and non-cumulative options. The cumulative vs non-cumulative fixed deposit choice significantly impacts how your money grows and how you receive returns. While both provide guaranteed returns, they cater to different financial needs and goals.
Let’s break down these differences to help you make an informed decision for your hard-earned money.
A cumulative FD is one in which the interest is compounded and paid with the deposit at the time of the maturity. It is an ideal investment option for people looking to build a corpus as opposed, as opposed to earning regular interest payments. Since the interest accrued on the cumulative Fixed Deposit is reinvested, you get the benefit of compounded returns, which in turn leads to the creation of a lump sum amount at the end of the FD tenure.
Let us understand the concept better with an example:-
If a Anushka Sharma starts a fixed deposit of ₹1,00,000 for a tenure of 5 years with the interest of 7% p.a. the interest earned is shown below:
| Year | Deposit | Interest earned | Total amount |
|---|---|---|---|
| 1 | ₹1,00,000 | ₹7,000 | ₹1,07,000 |
| 2 | ₹1,07,000 | ₹7,490 | ₹1,14,490 |
| 3 | ₹1,14,490 | ₹8,014 | ₹1,22,504 |
| 4 | ₹1,22,504 | ₹8,575 | ₹1,31,079 |
| 5 | ₹1,31,079 | ₹9,175 | ₹1,40,254 |
This type of fixed deposit scheme is suitable for those who do not depend on income through interest. Generally, people with a stable job and income and people who are earning well through their business invest in this.
So, if you want a particular amount in the future, and can easily manage without a particular interest regularly, you can consider cumulative FD.
Cumulative fixed deposits are ideal for:
Sabari, a 32-year-old IT professional, invested ₹5 lakh in a cumulative FD for his daughter’s education. With no immediate need for the interest income, She chose compounding to maximise returns. After 7 years, her investment grew to ₹8.2 lakh, providing a substantial education fund.
A non-cumulative fixed deposit pays the accumulated interest regularly to the investor. Based on the choice of the investor, interest can be monthly, quarterly, half-yearly or yearly. It is essential to know that the interest rates vary for each payout option. For instance, the interest rates for monthly, quarterly, half-yearly and yearly payouts can be 6.5%, 6.75%, 7% and 7.05%, respectively. Furthermore, the interest earned is taxable in the hands of investors at the time of receipt.
The tenure ranges from 6 months to 5 years. A non-cumulative is preferred by investors who require a regular income, for example, pensioners.
Let us understand a non-cumulative fixed deposit with the help of an example.
If a Rohit Sharma starts a fixed deposit with ₹1,00,000 for a tenure of 5 years at the interest of 7% p.a., assuming that the interest payout is every year. His interest earned is shown below.
| Year | Deposit | Interest earned | Total amount |
|---|---|---|---|
| 1 | ₹1,00,000 | ₹7,000 | ₹1,07,000 |
| 2 | ₹1,07,000 | ₹7,490 | ₹1,14,490 |
| 3 | ₹1,14,490 | ₹8,014 | ₹1,22,504 |
| 4 | ₹1,22,504 | ₹8,575 | ₹1,31,079 |
| 5 | ₹1,31,079 | ₹9,175 | ₹1,40,254 |
Non-cumulative FD works best for retirees, freelancers and housewives who seek regular income from their savings.
A non-cumulative fixed deposit will be a good choice for those who want a regular income, especially retired people and senior citizens. In other words, if you want a consistent income from your savings, this is the right choice.
Non-cumulative fixed deposits work best for:
Sheela Joseph, a 65-year-old retiree, invested ₹10 lakh in a non-cumulative FD with monthly interest payouts. This provided her ₹6,250 monthly (at 7.5% p.a.), helping cover regular expenses while preserving her principal amount.
The difference between cumulative and non-cumulative FD primarily revolves around how interest payments are handled:
| Particulars | Cumulative Fixed Deposit | Non-cumulative Fixed Deposit |
| Definition | An FD where interest is earned and re-invested regularly but paid out with the FD amount at the end of the FD tenure | An FD where interest is paid at regular intervals and the FD amount is paid out at the end of the FD tenure |
| Interest Payout | Only at maturity | Monthly / quarterly / half-yearly / annually, as chosen |
| Reinvestment of Interest | Interest is reinvested to earn more | No reinvestment, interest is paid out |
| Returns | Higher returns due to compounding | Lower returns than cumulative FDs |
| Suitable For | Salaried individuals and long-term investors | Retirees, homemakers and individuals who want a regular income |
| Income Flow | No income during the deposit period | Regular flow of income throughout the FD tenure |
1. Financial Goals: Define your financial objectives clearly. A Cumulative FD might be more suitable if you are looking for long-term wealth accumulation and can forego periodic interest payouts. On the other hand, if you require regular income for monthly expenses or specific financial goals, a Non-cumulative FD would be a better choice.
2. Liquidity Needs: Assess your liquidity needs and emergency fund requirements. A Cumulative FD locks your funds until maturity while a Non-cumulative FD allows you to receive regular interest payouts. If you anticipate the need for funds in the short term, a Non-cumulative FD provides more flexibility in accessing the interest earnings.
3. Tax implications: Evaluate the tax implications of both the options. In a Cumulative FD, the interest is reinvested and added to the principal amount, leading to a higher tax liability upon maturity. On the other hand, in a Non-cumulative FD, the interest is paid regularly and you have to pay tax on the interest income as per your tax slab each year.
4. Penalty for premature withdrawal: Check the penalty or loss of interest applicable for premature withdrawal or closure. In some cases, choosing a shorter tenure for a Non-cumulative FD might be more beneficial instead of breaking a long-term Cumulative FD.
By carefully considering these factors and conducting a comprehensive analysis, you can make an informed decision between Cumulative and Non-cumulative FDs to maximise your returns and achieve your financial objectives.
FD returns can be maximised in the cumulative option. Here, the interest accumulated is reinvested on a regular basis. Thus, the interest accrued in the first cycle (generally yearly or quarterly) is added to the principal. This leads to an increased principal. Interest in the second cycle is calculated on this increased principal that leads to higher interest. This goes on until the FD tenure is not over.
This way, interest at the end of the FD tenure becomes higher than a traditional non-cumulative fixed deposit and returns are swelled to the maximum.
The choice between the two modes of interest payment depends on your preference. If your purpose is to add-on to your existing income or to provide for pension after retirement, non-cumulative FD is your pick.
The choice between these two types of interest payouts can be an investor’s decision depending on their requirement and needs. If your investment purpose is to add something to your existing income or get a pension after retirement, then it is best to choose a non-cumulative fixed deposit. However, suppose your investment purpose is not to look for any add-on but to multiply your existing savings at a good exponential rate, you can opt for a cumulative fixed deposit without any second thought.
In a cumulative FD, interest earned is reinvested, allowing your money to grow through the power of compounding. With fixed deposit investments, this compounding effect can significantly boost your returns over time.
Non-cumulative FDs, meanwhile, pay out interest at regular intervals as per your chosen frequency. This provides a steady income stream but sacrifices the compounding advantage.
Pro Tip: If you don’t need regular income, cumulative FDs typically offer 0.5-1% higher effective returns compared to non-cumulative options due to the compounding effect.
When evaluating cumulative vs non-cumulative fixed deposit options, tax implications deserve careful attention:
If you plan to invest substantial amounts, consider submitting Form 15G/15H to avoid TDS if your income is below the taxable limit. You’ll need to provide proper documents for this purpose.
Both FD types allow premature withdrawals, but with different implications:
For emergency needs, consider a loan against your FD instead of a premature withdrawal. This option typically offers loans up to 90% of your deposit value at interest rates 1-2% higher than your FD rate.
When deciding between cumulative and non-cumulative FDs, ask yourself:
Today’s competitive interest rates make fixed deposits an attractive option for both income generation and wealth creation. Choose the type that aligns with your financial priorities.
Salaried individuals, or small business owners, who don’t necessarily need any added income to meet their monthly expenses can easily opt for a cumulative FD. By saving a larger amount, the corpus built using a cumulative scheme can also help meet long-term financial goals.
For retired individuals and pensioners, who don’t have a steady source of income, non-cumulative FDs are a better bet. They provide periodic payments on a regular basis, allowing such individuals to better plan their day-to-day and monthly expenses.
Irrespective of which section of society you belong to, an FD, can help you build a better corpus for the future. In fact, they are the most preferred form of investment to help individuals meet their long-term financial goals.
Suppose, Virat Kohli deposit Rs. 1,00,000 in a fixed deposit for a tenure of 5 years with an 8.5% rate of interest and Virat Kohli selected monthly compounding frequency in the cumulative FD. In such a situation, Virat Kohli will get Rs. 1,52,730 upon maturity.
However, if Virat Kohli select quarterly compounding for Rs. 1,00,00 and with the same rate of interest, Virat Kohli will get Rs. 1,52,279 upon maturity.
If Virat Kohli select half-yearly compounding for this principal amount and the same rate of interest, Virat Kohli will get Rs. 1,51, 621 upon maturity.
If Virat Kohli select yearly compounding frequency on the same principal amount and with the same rate of interest, then the amount that Virat Kohli will get at maturity would be Rs. 1,50,365.
However, if Virat Kohli opt for non-cumulative FD for a tenure of 5 years and on yearly basis at the rate of interest of 9.25%, Virat Kohli will get Rs. 1,46,250 upon maturity. The interest earned is Rs. 46,250.
On a half-yearly, quarterly, and monthly basis for the same principal amount with the same rate of interest and same tenure, the maturity amount will be Rs. 1,45,250, Rs. 1,44,750, and Rs. 1,44,500 respectively.
Cumulative FDs reinvest interest, paying everything at maturity, while non-cumulative FDs distribute interest periodically (monthly/quarterly/annually) throughout the tenure.
Cumulative FDs typically yield higher returns due to compounding, where interest earns interest. This creates a notable difference between cumulative and non-cumulative FD returns over longer periods.
Not necessarily. Cumulative FDs concentrate tax liability at maturity, while non-cumulative FDs spread tax across multiple years, which can be advantageous for tax planning.
Most banks don’t allow switching between cumulative vs non-cumulative fixed deposit types after opening. You’ll typically need to close the existing FD and open a new one.
For seniors, cumulative FDs can build legacy wealth, while non-cumulative options provide regular income. Many institutions offer 0.25-0.50% higher rates for senior citizens on both types.
I’m a contributor at Finanjo, where I write about personal finance, banking, and everyday money topics in a clear and practical way. I simplify complex finance jargon into easy explanations and real-life insights, covering everything from bank accounts and deposits to government schemes and smart money decisions so readers can understand finance without the confusion.
A Fixed Deposit is categorized into a Cumulative vs Non-Cumulative FD depending on the interest payout frequency. Cumulative vs Non-Cumulative FD is a common comparison for investors who want to choose the right fixed deposit payout option based on their income and investment goals. In a cumulative FD, interest is reinvested and paid along with the principal at maturity, helping your money grow faster. In contrast, a non-cumulative FD pays interest at regular intervals such as monthly, quarterly, or annually, making it suitable for those who need a steady income. Understanding the difference between cumulative and non-cumulative FD options will help you decide which one aligns better with your financial needs and cash flow requirements.
This blog shares with you the differences between cumulative vs non-cumulative fixed deposits in detail, helping you decide which one is right for you.
Fixed deposits remain a cornerstone of Indian investment portfolios, with 45% of urban households considering them essential for financial security. When investing in an FD, the first decision you’ll face is choosing between cumulative and non-cumulative options. The cumulative vs non-cumulative fixed deposit choice significantly impacts how your money grows and how you receive returns. While both provide guaranteed returns, they cater to different financial needs and goals.
Let’s break down these differences to help you make an informed decision for your hard-earned money.
A cumulative FD is one in which the interest is compounded and paid with the deposit at the time of the maturity. It is an ideal investment option for people looking to build a corpus as opposed, as opposed to earning regular interest payments. Since the interest accrued on the cumulative Fixed Deposit is reinvested, you get the benefit of compounded returns, which in turn leads to the creation of a lump sum amount at the end of the FD tenure.
Let us understand the concept better with an example:-
If a Anushka Sharma starts a fixed deposit of ₹1,00,000 for a tenure of 5 years with the interest of 7% p.a. the interest earned is shown below:
| Year | Deposit | Interest earned | Total amount |
|---|---|---|---|
| 1 | ₹1,00,000 | ₹7,000 | ₹1,07,000 |
| 2 | ₹1,07,000 | ₹7,490 | ₹1,14,490 |
| 3 | ₹1,14,490 | ₹8,014 | ₹1,22,504 |
| 4 | ₹1,22,504 | ₹8,575 | ₹1,31,079 |
| 5 | ₹1,31,079 | ₹9,175 | ₹1,40,254 |
This type of fixed deposit scheme is suitable for those who do not depend on income through interest. Generally, people with a stable job and income and people who are earning well through their business invest in this.
So, if you want a particular amount in the future, and can easily manage without a particular interest regularly, you can consider cumulative FD.
Cumulative fixed deposits are ideal for:
Sabari, a 32-year-old IT professional, invested ₹5 lakh in a cumulative FD for his daughter’s education. With no immediate need for the interest income, She chose compounding to maximise returns. After 7 years, her investment grew to ₹8.2 lakh, providing a substantial education fund.
A non-cumulative fixed deposit pays the accumulated interest regularly to the investor. Based on the choice of the investor, interest can be monthly, quarterly, half-yearly or yearly. It is essential to know that the interest rates vary for each payout option. For instance, the interest rates for monthly, quarterly, half-yearly and yearly payouts can be 6.5%, 6.75%, 7% and 7.05%, respectively. Furthermore, the interest earned is taxable in the hands of investors at the time of receipt.
The tenure ranges from 6 months to 5 years. A non-cumulative is preferred by investors who require a regular income, for example, pensioners.
Let us understand a non-cumulative fixed deposit with the help of an example.
If a Rohit Sharma starts a fixed deposit with ₹1,00,000 for a tenure of 5 years at the interest of 7% p.a., assuming that the interest payout is every year. His interest earned is shown below.
| Year | Deposit | Interest earned | Total amount |
|---|---|---|---|
| 1 | ₹1,00,000 | ₹7,000 | ₹1,07,000 |
| 2 | ₹1,07,000 | ₹7,490 | ₹1,14,490 |
| 3 | ₹1,14,490 | ₹8,014 | ₹1,22,504 |
| 4 | ₹1,22,504 | ₹8,575 | ₹1,31,079 |
| 5 | ₹1,31,079 | ₹9,175 | ₹1,40,254 |
Non-cumulative FD works best for retirees, freelancers and housewives who seek regular income from their savings.
A non-cumulative fixed deposit will be a good choice for those who want a regular income, especially retired people and senior citizens. In other words, if you want a consistent income from your savings, this is the right choice.
Non-cumulative fixed deposits work best for:
Sheela Joseph, a 65-year-old retiree, invested ₹10 lakh in a non-cumulative FD with monthly interest payouts. This provided her ₹6,250 monthly (at 7.5% p.a.), helping cover regular expenses while preserving her principal amount.
The difference between cumulative and non-cumulative FD primarily revolves around how interest payments are handled:
| Particulars | Cumulative Fixed Deposit | Non-cumulative Fixed Deposit |
| Definition | An FD where interest is earned and re-invested regularly but paid out with the FD amount at the end of the FD tenure | An FD where interest is paid at regular intervals and the FD amount is paid out at the end of the FD tenure |
| Interest Payout | Only at maturity | Monthly / quarterly / half-yearly / annually, as chosen |
| Reinvestment of Interest | Interest is reinvested to earn more | No reinvestment, interest is paid out |
| Returns | Higher returns due to compounding | Lower returns than cumulative FDs |
| Suitable For | Salaried individuals and long-term investors | Retirees, homemakers and individuals who want a regular income |
| Income Flow | No income during the deposit period | Regular flow of income throughout the FD tenure |
1. Financial Goals: Define your financial objectives clearly. A Cumulative FD might be more suitable if you are looking for long-term wealth accumulation and can forego periodic interest payouts. On the other hand, if you require regular income for monthly expenses or specific financial goals, a Non-cumulative FD would be a better choice.
2. Liquidity Needs: Assess your liquidity needs and emergency fund requirements. A Cumulative FD locks your funds until maturity while a Non-cumulative FD allows you to receive regular interest payouts. If you anticipate the need for funds in the short term, a Non-cumulative FD provides more flexibility in accessing the interest earnings.
3. Tax implications: Evaluate the tax implications of both the options. In a Cumulative FD, the interest is reinvested and added to the principal amount, leading to a higher tax liability upon maturity. On the other hand, in a Non-cumulative FD, the interest is paid regularly and you have to pay tax on the interest income as per your tax slab each year.
4. Penalty for premature withdrawal: Check the penalty or loss of interest applicable for premature withdrawal or closure. In some cases, choosing a shorter tenure for a Non-cumulative FD might be more beneficial instead of breaking a long-term Cumulative FD.
By carefully considering these factors and conducting a comprehensive analysis, you can make an informed decision between Cumulative and Non-cumulative FDs to maximise your returns and achieve your financial objectives.
FD returns can be maximised in the cumulative option. Here, the interest accumulated is reinvested on a regular basis. Thus, the interest accrued in the first cycle (generally yearly or quarterly) is added to the principal. This leads to an increased principal. Interest in the second cycle is calculated on this increased principal that leads to higher interest. This goes on until the FD tenure is not over.
This way, interest at the end of the FD tenure becomes higher than a traditional non-cumulative fixed deposit and returns are swelled to the maximum.
The choice between the two modes of interest payment depends on your preference. If your purpose is to add-on to your existing income or to provide for pension after retirement, non-cumulative FD is your pick.
The choice between these two types of interest payouts can be an investor’s decision depending on their requirement and needs. If your investment purpose is to add something to your existing income or get a pension after retirement, then it is best to choose a non-cumulative fixed deposit. However, suppose your investment purpose is not to look for any add-on but to multiply your existing savings at a good exponential rate, you can opt for a cumulative fixed deposit without any second thought.
In a cumulative FD, interest earned is reinvested, allowing your money to grow through the power of compounding. With fixed deposit investments, this compounding effect can significantly boost your returns over time.
Non-cumulative FDs, meanwhile, pay out interest at regular intervals as per your chosen frequency. This provides a steady income stream but sacrifices the compounding advantage.
Pro Tip: If you don’t need regular income, cumulative FDs typically offer 0.5-1% higher effective returns compared to non-cumulative options due to the compounding effect.
When evaluating cumulative vs non-cumulative fixed deposit options, tax implications deserve careful attention:
If you plan to invest substantial amounts, consider submitting Form 15G/15H to avoid TDS if your income is below the taxable limit. You’ll need to provide proper documents for this purpose.
Both FD types allow premature withdrawals, but with different implications:
For emergency needs, consider a loan against your FD instead of a premature withdrawal. This option typically offers loans up to 90% of your deposit value at interest rates 1-2% higher than your FD rate.
When deciding between cumulative and non-cumulative FDs, ask yourself:
Today’s competitive interest rates make fixed deposits an attractive option for both income generation and wealth creation. Choose the type that aligns with your financial priorities.
Salaried individuals, or small business owners, who don’t necessarily need any added income to meet their monthly expenses can easily opt for a cumulative FD. By saving a larger amount, the corpus built using a cumulative scheme can also help meet long-term financial goals.
For retired individuals and pensioners, who don’t have a steady source of income, non-cumulative FDs are a better bet. They provide periodic payments on a regular basis, allowing such individuals to better plan their day-to-day and monthly expenses.
Irrespective of which section of society you belong to, an FD, can help you build a better corpus for the future. In fact, they are the most preferred form of investment to help individuals meet their long-term financial goals.
Suppose, Virat Kohli deposit Rs. 1,00,000 in a fixed deposit for a tenure of 5 years with an 8.5% rate of interest and Virat Kohli selected monthly compounding frequency in the cumulative FD. In such a situation, Virat Kohli will get Rs. 1,52,730 upon maturity.
However, if Virat Kohli select quarterly compounding for Rs. 1,00,00 and with the same rate of interest, Virat Kohli will get Rs. 1,52,279 upon maturity.
If Virat Kohli select half-yearly compounding for this principal amount and the same rate of interest, Virat Kohli will get Rs. 1,51, 621 upon maturity.
If Virat Kohli select yearly compounding frequency on the same principal amount and with the same rate of interest, then the amount that Virat Kohli will get at maturity would be Rs. 1,50,365.
However, if Virat Kohli opt for non-cumulative FD for a tenure of 5 years and on yearly basis at the rate of interest of 9.25%, Virat Kohli will get Rs. 1,46,250 upon maturity. The interest earned is Rs. 46,250.
On a half-yearly, quarterly, and monthly basis for the same principal amount with the same rate of interest and same tenure, the maturity amount will be Rs. 1,45,250, Rs. 1,44,750, and Rs. 1,44,500 respectively.
Cumulative FDs reinvest interest, paying everything at maturity, while non-cumulative FDs distribute interest periodically (monthly/quarterly/annually) throughout the tenure.
Cumulative FDs typically yield higher returns due to compounding, where interest earns interest. This creates a notable difference between cumulative and non-cumulative FD returns over longer periods.
Not necessarily. Cumulative FDs concentrate tax liability at maturity, while non-cumulative FDs spread tax across multiple years, which can be advantageous for tax planning.
Most banks don’t allow switching between cumulative vs non-cumulative fixed deposit types after opening. You’ll typically need to close the existing FD and open a new one.
For seniors, cumulative FDs can build legacy wealth, while non-cumulative options provide regular income. Many institutions offer 0.25-0.50% higher rates for senior citizens on both types.
I’m a contributor at Finanjo, where I write about personal finance, banking, and everyday money topics in a clear and practical way. I simplify complex finance jargon into easy explanations and real-life insights, covering everything from bank accounts and deposits to government schemes and smart money decisions so readers can understand finance without the confusion.
