Difference Between Cumulative and Non-Cumulative Fixed Deposits Explained

September 09, 2024

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When it comes to investing your hard-earned money, Fixed Deposits (FDs) are a popular choice for many. They offer a safe and reliable way to earn steady returns with minimal risk. However, within the realm of fixed deposits, there are two primary options that you need to consider - cumulative or non-cumulative fixed deposits.

Understanding the differences between these two types of fixed deposits is important for making an accurate and informed decision. In this comprehensive guide, we have outlined the difference between cumulative and non-cumulative fixed deposits to help you choose the most suitable option for your financial goals.

What are Cumulative Fixed Deposits?

Cumulative FDs are an excellent choice for long-term investors looking to maximise their returns over time. In a cumulative FD, the interest earned is compounded annually and reinvested along with the principal amount. This means that the interest earned in each financial year is added to the initial investment, resulting in higher overall returns at maturity.

Benefits of Cumulative FDs

1. Higher Returns on Maturity:

The compounding effect leads to increased returns on the cumulative FD, making it an attractive option for long-term investors.

2. Ideal for Long-Term Goals:

Cumulative FDs are well-suited for individuals with long-term financial objectives such as retirement planning or buying a house.

Understanding the Difference Between Cumulative and Non-Cumulative FDs

To better understand the difference between cumulative and non-cumulative fixed deposits, let's look at a comparison table:

Particulars	Cumulative FD	Non-Cumulative FD
Definition	Interest is accumulated through the entire FD tenure	Interest is paid out at regular intervals
Interest Payout	Paid on maturity	Paid on a monthly, quarterly, half-yearly, or yearly basis
Income Flow	No income during the FD tenure	Regular income flow throughout the tenure
Reinvestment	Yes	No
Suitable for	Salaried individuals or those with stable profits	Retirees, housewives, and freelancers

Sample Calculation: Let's consider an example to compare the returns from cumulative and non-cumulative fixed deposits. Suppose you invest ₹10,00,000 in both types of FDs with an interest rate of 8% for a tenure of 5 years.

Cumulative FD: At the end of 5 years, your investment will grow to ₹14,69,664.
Non-Cumulative FD (quarterly payout): You will receive ₹20,000 every quarter as interest income, resulting in a total payout of ₹8,00,000 over 5 years.

As you can see, the cumulative FD offers higher overall returns than the non-cumulative FD. However, investors, particularly senior citizens, looking for a regular income stream.

Disclaimer: The above calculation is for illustration purposes only. Ujjivan SFB doesn't take any responsibility on the accuracy of the information provided.

Final Thoughts

Consider the aforementioned factors before deciding on the interest pay-outs. It's advisable to select the frequency based on your financial goals. Ujjivan SFBoffers a wide range of Fixed Deposit products with the flexibility of choosing the payment frequency.

Apply for Ujjivan SFB FD today and enjoy higher returns, flexible interest pay-out options, easy account opening process, and more.

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FAQs

1. What is the difference between cumulative vs. non-cumulative fixed deposits?

Cumulative FDs reinvest the interest earned, resulting in higher overall returns at maturity. Non-cumulative FDs provide regular interest payouts at discounted rate without reinvestment.