Understanding a cumulative deposit & how it differs from a non-cumulative deposit

Fixed deposit accounts are one of the safest instruments to save your money and earn better interest over the period  To offer enhanced banking, banks offer various types of fixed deposit accounts, including cumulative deposit and non-cumulative deposit accounts. The working of these accounts is similar except for the way in which the interests are earned. Let us understand the working of a cumulative FD and who should opt for them.

What is a cumulative fixed deposit account?
 

A fixed deposit account is a secure venue to park your funds and earn decent interest for better gains. In a deposit account, a specific amount, usually in a lump sum, is invested for certain pre-decided tenure, and it earns interest on a quarterly, half-yearly, or annual basis depending on the account type. The interest rates are also decided at the time of account opening, and they remain the same throughout the investment tenure.

Among various deposits, a cumulative FD reinvests interest at specific intervals which in turn helps earn higher savings. Due to reinvestment, you get a compounding effect on your deposits, resulting in higher savings. The funds deposited in a cumulative deposit account earn interest at a fixed interval, say quarterly, half-yearly, or annually and are paid at maturity. The accrued interest adds to your initial funds and is again invested for further tenures until maturity. This can help with providing better returns in comparison to other deposit accounts.

If you are looking for a suitable FD, consider opening an IDFC FIRST Bank Fixed Deposit, as it offers one of the best and a competitive interest rates and flexible tenures ranging from 7 days to 10 years. You can choose the interest payout period depending on your financial needs, and senior citizens are entitled to additional benefits. Know more!

Difference between a cumulative and a non-cumulative FD
 

While both cumulative and non-cumulative deposits work on the same principle of fixed deposit accounts, they mainly vary in interest payout method. In a cumulative deposit account, the interests are earned and accumulated at fixed intervals and paid at maturity. The accumulated amounts get compounded at fixed intervals and help earn better returns.

In the case of non-cumulative FD, the bank pays the interest at a fixed interval. The interest payment period can vary on a monthly, quarterly, half-yearly, or annual basis. Since the interest is not withheld from the bank, the account holder gets a regular payout. However, the returns in a non-cumulative FD are lesser when compared to a cumulative deposit.

Who should opt for a cumulative deposit account?
 

Since a cumulative deposit does not offer regular interest payouts, anyone who does not depend on interest income can choose a cumulative deposit account. Individuals with stable incomes, salaried professionals, or those earning high profits in their businesses can open a cumulative deposit account. They can also choose the interest-earning period, despite the interest payment made at maturity.

Moreover, individuals intending for goal-based savings can also invest in a cumulative fixed deposit account. A non-cumulative account, on the other hand, is suitable for those who intend to earn regular income from  surplus funds. 

Lastly, choosing a specific deposit account that aligns with your financial requirements is crucial. When opening a fixed deposit account, consult your bank and draft an outline of your saving goals to get the best FD for yourself. 


Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.