Fixed deposits offer a lot of advantages, such as guaranteed returns, stable rates of interest and returns unbothered by market fluctuations. Not to mention that FD offers a higher interest rate than a common savings account.
Now, there are multiple types of fixed deposit accounts you can choose from, but the most common ones are cumulative and non-cumulative FDs. In this blog, you will learn about cumulative FD in detail and how it is different from a non-cumulative FD. Read along!
What is the Meaning of Cumulative FD?
The term cumulative refers to something that is collected over a period of time. Hence, cumulative FD means the type of fixed deposit where the interest is collected over a period of time, let’s say a year, and then reinvested for another term.
The advantage of this type of Fixed Deposit scheme is that the principal amount gets increased each year, which results in a larger maturity corpus. Let’s understand the concept with an example:
Suppose you have started a fixed deposit with Rs. 3,00,000 for a term of 5 years at an interest rate of 7% p.a. Now, take a look at the table below to understand how much you will receive upon maturity after 5 years:
| Year | Principal Amount | Interest Received | Gross Amount |
| 1 | Rs. 3,00,000 | Rs. 21,558 | Rs. 3,21,558 |
| 2 | Rs. 3,21,558 | Rs. 23,107 | Rs. 3,44,665 |
| 3 | Rs. 3,44,665 | Rs. 24,767 | Rs. 3,69,432 |
| 4 | Rs. 3,69,432 | Rs. 26,547 | Rs. 3,95,978 |
| 5 | Rs. 3,95,978 | Rs. 28,455 | Rs. 4,24,433 |
Hence, after 5 years of investment in a cumulative fixed deposit account, you receive a maturity amount of Rs. 4,24,433.
On the contrary, if you had invested through a traditional fixed deposit, you would have received a maturity amount of Rs. 3,95,976. Hence, you earn an additional return of Rs. 28,457 with a cumulative FD.
For ease of calculation and faster results, you can use a cumulative FD calculator available online.
What is the Suitability of Cumulative FDs?
With cumulative FDs, you won’t get the benefit of generating interest income in a periodic manner; however, you can benefit from the power of compounding.
After deducting any applicable TDS, the interest on cumulative FDs is compounded annually and accrued every year. This amount, along with the principal deposit, is paid only on maturity of the scheme or completion of the tenure.
What are the Features of Cumulative Fixed Deposits?
Cumulative FDs have some distinctive features when compared to traditional FDs. Take a look at some of its features:
- Interest is accumulated and reinvested throughout the tenure.
- Higher maturity amount due to increased principal each year through reinvestment of accrued interest.
- If you are a salaried individual or have a stable source of earning or profit, this is a great investment opportunity for you.
- This is also a great option for building a large corpus for future financial goals.
Cumulative FD rates
Mentioned below are the cumulative FD interest rates offered by some popular NBFCs, public and private banks in 2023.
Public Banks
| Bank | Rate of Interest (%) | |||
| Highest Slab | 1 Year | 3 Years | 5 Years | |
| State Bank of India | 7.10 | 6.80 | 6.50 | 6.50 |
| Bank of Baroda | 7.25 | 6.75 | 7.05 | 6.50 |
| Bank of India | 7.25 | 6.00 | 6.50 | 6.00 |
| Canara Bank | 7.25 | 6.90 | 6.80 | 6.70 |
| Central Bank of India | 7.15 | 6.75 | 6.50 | 6.25 |
Private Banks
| Bank | Rate of Interest (%) | |||
| Highest Slab | 1 Year | 3 Years | 5 Years | |
| Axis Bank | 7.30 | 6.75 | 7.00 | 7.00 |
| HDFC Bank | 7.25 | 6.60 | 7.00 | 7.00 |
| ICICI Bank | 7.10 | 6.70 | 7.00 | 7.00 |
| Kotak Mahindra Bank | 7.20 | 7.10 | 6.50 | 6.20 |
| IDFC First Bank | 7.50 | 6.50 | 7.25 | 7.00 |
Small Finance Banks
| Bank | Rate of Interest (%) | |||
| Highest Slab | 1 Year | 3 Years | 5 Years | |
| AU Small Finance Bank | 8.00 | 6.75 | 8.00 | 7.25 |
| Capital Small Finance Bank Limited | 7.50 | 7.50 | 7.15 | 7.10 |
| Equitas Small Finance Bank | 8.50 | 8.20 | 8.00 | 7.25 |
| Jana Small Finance Bank | 8.50 | 8.00 | 8.50 | 7.25 |
| Ujjivan Small Finance Bank | 8.25 | 8.25 | 7.20 | 7.20 |
You can use an online FD calculator to calculate the returns you can generate from the FD schemes highlighted above. Make sure to go ahead with your investment after reading the fine print of the scheme details.
Difference between Cumulative and Non-cumulative FD
The primary difference between a cumulative and a non-cumulative FD is in the interest payout frequency. The following table lays down the primary differences between cumulative and non-cumulative fixed deposits.
| Cumulative Fixed Deposit | Non-Cumulative Fixed Deposit |
| Interest is accumulated and paid at maturity with the deposit amount. | Interest is not accumulated and is paid out at regular intervals as decided by the depositor. |
| Interest is paid at the end of tenure. | Interest is paid on a monthly, yearly, bi-yearly, or quarterly basis. |
| No income throughout the FD tenure. | Regular interest income earned throughout the FD tenure. |
| The total amount earned at maturity is slightly higher as the interest amount is reinvested, which amplifies the principal. | The maturity amount is slightly less as the interest has already been paid out and not reinvested. |
| This type is ideal for salaried individuals or individuals who earn stable profits. | This type is ideal for housewives, retirees/ senior citizens or freelancers who don’t have a stable source of income or profit. |
Summing Up
Cumulative FD is an excellent investment choice if you want to take advantage of the power of compounding. Compounding will be applicable on the accrued interest, and you will receive a maturity amount which is higher than what any other type of FD can offer. However, ensure that your personal and financial requirements align with the choice you make.
