Interested in investing in a cumulative FD? Check out all the details to know what this investment option is all about.

Tags: cumulative deposit, non cumulative meaning, cumulative fd

There are different types of fixed deposits available for interested investors. Among these, two common options are cumulative deposits and non cumulative deposits. What is the meaning of these terms, though? Knowing the details can help you make the right choice between these alternatives. Let us take a quick look at these investment options. 

Cumulative FDs

A cumulative FD or a cumulative deposit is simply an FD where the interest on the investment is compounded throughout the investment tenure. So, in simple terms, the interest is reinvested in the FD year after year, all through the investment period. At the end of the tenure, when the FD matures, you receive the principal amount (i.e. the original amount you invested) along with the interest that was accumulated over the investment tenure. This is how a cumulative deposit works. 

For example, say you invest Rs. 40 lakhs in a cumulative FD. And suppose that the annual interest it generates comes up to around Rs. 2.4 lakhs. In that case, at the end of year 1, the interest of Rs. 2.4 lakhs is added back to the principal of Rs. 40 lakhs. Then, during the second year, interest is calculated on the cumulative amount of Rs. 42.4 lakhs. And in this manner, the cumulative interest helps your investment grow.

Non-cumulative FDs

Wondering what the non cumulative meaning is? Well, simply put, in a non cumulative FD, the interest amount is not added back in the investment. Instead, it is paid out to the holder of the deposit. The payment can be made at the frequency chosen by the FD holder. If you opt for a non cumulative FD, you can choose to receive your interest on a monthly, quarterly, semi-annual or annual basis. 

Let’s take up the same example we saw above and understand how non cumulative deposits work. Again, say you invest Rs. 40 lakhs in a cumulative FD. Like we saw previously, suppose that the annual interest it generates comes up to around Rs. 2.4 lakhs. If you choose to receive this interest payout annually, your bank account will be credited with Rs. 2.4 lakhs each year. Your FD amount will continue to remain at Rs. 40 lakhs, but you will receive regular annual income with this option. 

Conclusion

So, which of these two options should you choose? A cumulative FD is more suitable for investors who want to ensure that their money grows over the years. On the other hand, if you want to preserve your capital while enjoying regular income, a non cumulative deposit may be a better fit. To invest in the right FD for you, check out cumulative deposits, non cumulative deposits and a range of other FDs available on Finserv MARKETS. You can choose the FD that meets your needs and apply online right away through a quick and simple process.