Fixed deposits are among the most popular investment avenues, especially among conservative investors. In an FD, interest rates are fixed at the time of deposit and remain the same during the entire tenure. The depositors are at an advantage as they know the exact amount they will receive at the time of maturity. It helps them to plan their finances more efficiently.
FDs are of two types – cumulative and non-cumulative FDs. The difference between the two is the payout frequencies. In this article, we shall discuss some important aspects regarding the cumulative and non-cumulative FDs such as meaning, features and differences between the two.
What is the meaning of Cumulative FD?
Under cumulative FDs, the interest gets compounded annually and the depositor receives the interest cumulatively in a lump sum manner on maturity. The term cumulative means accumulation and interest gets collected till the end of FD tenure.
In a cumulative fixed deposit, interest collected in one year or half a year is not given back to the depositor. Instead this amount is again reinvested in the principal amount. The benefit of this is that the principal amount also increases year-on-year basis and the interest amount also goes up. These types of fixed deposits are ideal for those who do not depend on regular income.
Now that you have understood the meaning of cumulative FD, let’s shift our attention to other aspects like features and rates.
Features of Cumulative FD
The features of cumulative fixed deposit are as follows:
- The interest gets added back to the principal amount and the depositor receives it cumulatively at the end of FD tenure.
- It is ideal for those individuals who do not depend on interest income. These include people with stable salaries and those earning significant profits from the business.
- There is no income flow during the FD tenure.
- Due to the compounding effect, net returns on cumulative FDs is higher than non-cumulative FDs.
Cumulative FD Rates
The cumulative FD rates of different banks are as follows:
| Bank | Interest Rate | Tenure |
| State Bank of India | 3 Months – 10 Years | 3%-6.50% |
| Axis Bank | 6 Months – 5 Years | 5.75%-7.00% |
| HDFC Bank | 3 Months – 10 Years | 4.50%-7.00% |
| Bank of Baroda | 3 Months – 10 Years | 4.50%-6.50% |
| ICICI Bank | 3 Months – 10 Years | 4.50%-6.90% |
| Punjab National Bank | 3 Months – 10 Years | 4.50%-6.50% |
What is the Meaning of Non-Cumulative FD?
In case of a non-cumulative fixed deposit, the investor can choose the frequency of interest payout. In other words, one can select whether they want the interest monthly, quarterly, half-yearly or annually. Unlike cumulative FDs, in non-cumulative deposits, the interest amount remains the same and the depositor receives this interest periodically during the tenure.
This type of FD is ideal for those who have EMI obligations or rental payments and hence depend on a regular flow of income. Non-cumulative FDs are quite popular among senior citizens as they use the regular interest amount to meet their recurring expenses.
Key Features of Non-Cumulative FD
Some of the key features of non-cumulative fixed deposits are as follows:
- Investors receive regular interest payouts.
- It is ideal for those who depend on regular income flow like senior citizens.
- The interest is not added back to the principal amount. Hence, the interest amount is fixed for the entire FD duration.
- The total interest amount is lower in non-cumulative FDs as compared to cumulative ones.
Non-Cumulative FDs Interest Rates
The interest rates for non-cumulative FDs for a duration of 7 days -10 years are as follows:
| Bank | Interest Rate for General Citizens | Interest Rate for Senior Citizens |
| IndusInd Bank | 3.50%-7.50% | 4.25%-8.25% |
| Central Bank of India | 3.50%-6.75% | 4.00%-7.25% |
| Indian Overseas Bank | 4.00%-7.25% | 4.50%-7.75% |
| Yes Bank | 3.25%-7.25% | 3.75%-8.25% |
| Bandhan Bank | 3.00%-7.85% | 3.75%-8.35% |
| Indian bank | 2.80%-7.25% | 3.30%-7.75% |
Differences Between Cumulative and Non-Cumulative FDs
The differences between cumulative and non-cumulative FDs are as follows:
| Parameter | Non-Cumulative FD | Cumulative FD |
| Meaning | Investors can choose the frequency of interest payout. | Interest gets accumulated and the depositor will receive it cumulatively at the end of FD tenure. |
| Income Flow | Regular flow of interest income. | There is no regular flow of interest income. |
| Reinvestment | Banks do not reinvest the interest in the principal amount. | Banks reinvest accumulated interest back into the principal amount. |
| Suitability | Suitable for those who do not have a regular source of income like senior citizens and housewives. | Ideal for those who have a stable income and are working professionals. |
| Income Frequency | Monthly, half yearly or quarterly | Cumulatively at the end of FD tenure. |
Summing Up
Cumulative and non-cumulative FDs are two types of fixed deposits with the basic difference between them being the interest payout frequency. If you are looking to invest your money in these FD types, you must thoroughly analyze your investment goals, and income profile before taking any decision.
