Savings AccountSavings Account
Term DepositsTerm Deposits
Credit CardsCredit Cards
NRI AccountNRI Account
LoansLoans
Preferred BankingPreferred Banking
chat Chat

Difference Between Cumulative and Non-Cumulative FD

RBL Bank Dec 02, 2022

Before discussing the cumulative and non-cumulative fixed deposits, the basic idea of the fixed deposit should be highlighted. Fixed deposits are widely popular among Indians because of their certainty of return rate. Fixed deposits are generally of two types: cumulative and non-cumulative.

The basic definition of cumulative FD is that its interest rate is accumulated and given at maturity. In contrast, non-cumulative FD releases the interest rate monthly, quarterly, and yearly. Investors often get these two types of FD while trying to open their new accounts.

Cumulative Fixed Deposit vs Non-Cumulative Fixed Deposit

Particulars

Cumulative FD

Non-Cumulative FD

Definition

Interest is accumulated through the entire FD tenure

Interest is not accumulated

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

Depositor earns interest on interest

Since the interest in paid out, there is no reinvestment option here

This leads to higher interest than non-cumulative FD

Total interest is slightly lesser than the cumulative option

Suitable for

Salaried people or those with stable profits

Retirees, housewives, and freelancers

 

Indians are rooted in a secure environment when it comes to investment. Hence, the fixed deposit investment option is widely popular. Investment in a fixed deposit is mainly viewed as a safe and secure choice as the return amount is guaranteed. There is a specific lock-in time ranging from 6 months to 10 years. Now, the investors have the choice on their sleeves which fixed deposit option they will choose. In RBL Bank, the fixed deposits below 181 days will be counted as the simple interest rate.

The prime banks and NBFCs offer two basic types of fixed deposits. Investors need to choose the fixed deposit type based on their needs. Few want to get the interest as regular payouts for expanding their business, while others want to secure the money for a specific time to multiply the amount. This is how the cumulative and non-cumulative fixed deposit types come to the surface.

Let us look at the advantages and disadvantages of cumulative and non-cumulative fixed deposits to help you make a well-informed investment decision.

Pros and Cons of Cumulative & Non Cumulative FD

A cumulative fixed deposit interest rate is reinvested. This fixed deposit option is better known as multiplying the income. Investors for their long-term projects often put the money for a lock-in period. In such cases, cumulative fixed deposits work in sync with the purpose, especially for long-haul projects.

Investors who are looking for a short-term investment should choose a non-cumulative fixed deposit. An interest payment is added to the daily payout of a non-cumulative fixed deposit. This fixed deposit is a good-to-go option for the short-term business-oriented investors. Small businesses get colossal profit from this type of investment. This fixed deposit option is also an ideal option for the pensioner.

There is an advantage in receiving interest every month. But in the cumulative FD, one would not get access if they have selected the lock-in period over three years. The cumulative fixed deposits and their interest rate can be reinvested after maturity. As it starts from 6 months, one can choose the monthly or yearly period depending upon their choice.

Cumulative fixed deposit brings add-ons to the saved amount. The return rates are not fixed in this fixed deposit. It can vary from half-yearly or every year. Due to its regular payment scheme, the Interest rate gets lower than the non-cumulative FD. For example, investors can receive an interest rate of 6.85% to 7.00%. The investors can select the tenure at their disposal. In this type of fixed deposit, there is no chance of reinvestment.

Which one is profitable: cumulative or non-cumulative?

These two fixed deposit types are profitable depending upon the investor’s choice. A cumulative fixed deposit is worthwhile, and the return rate is slightly higher than the non-cumulative. But this fixed deposit is locked in for a specific timeframe. Non-cumulative provides interest payout regularly. This is the best option for those who need money regularly. People who live on a pension after retirement can opt for such a fixed deposit. This type of FD has no option for reinvestment but provides the best return rate. Let’s check the example below to find out more about the profitability of cumulative or non-cumulative.

Example:

If an investor opens a fixed deposit in a bank with Rs. 1 Lakh for 5 years and the interest rate is 6% per annum.

For a non-cumulative FD, the interest payout will be as follows:

Year

Investment

Interest

Final Amount

1

100000

6937.2

106937.2

2

100000

6937.2

106937.2

3

100000

6937.2

106937.2

4

100000

6937.2

106937.2

5

100000

6937.2

106937.2

 

For a cumulative FD, the interest payout will be as follows:

Year

Investment

Interest

Final Amount

1

100000

6937.2

106937

2

106937

7191.25

114128

3

114128

7442

121570

4

121570

7689

129259

5

129259

7932

137191

 

So, it would be wise for investors to map out their monetary needs and invest accordingly. It will give them considerable benefits on their invested capital. RBL Bank has tailor-made its page for investors to know more details about fixed deposits.

Disclaimer: Articles published on the website are merely indicative and suggestive in nature and do not amount to solicitation. The contents do not guarantee the desired returns and/or results. Reader is advised to exercise discretion and consult independent advisors for achieving desired result. Visitors to this blog/ website w.r.t products & services offered by RBL Bank Limited herein, shall ensure that the comments / feedback posted shall be restricted to the contents published herein and shall not contain such language that may be un-parliamentary or against any religion, caste, section of society, political view etc. While our endeavor is to publish the comments that are submitted, however, all comments/feedback shall be subject to internal review by RBL Bank Limited. We do not guarantee that the comments that are submitted will be published.

Tags

Reward-Points
Zero-Balance-Savings-Account
Digital-Savings-Account
CIBIL-Score
Credit-Score

A newsletter from RBL Bank

Stay Informed on the most impactful business and financial news with analysis from our team

Archives:

Home

Home
Login

Login
Payments

Payments
RBL Cares

RBL Cares
More

More
go-to-top

TOP