In India, Fixed Deposits, Or Fds, Are One Of The Most Popular Investment Options, Especially Among Risk-averse Investors. It Is The Safest And Risk-free Investment Avenue That Offers Assured Returns In The Form Of Interest, Which Is Higher Than The Regular Savings Account.
Whether You Want To Invest For Your Long-term Or Short-term Goals, Fd Is A Wonderful Avenue That Lets You Grow Your Money Over The Years And Create A Substantial Corpus. When You Invest In Fd, The Financial Organisations Credit The Interest Periodically, Which Can Be Monthly, Quarterly, Half-yearly, Or Annually. Based On The Interest Payment Method, Fixed Deposits Are Categorised Into Two Types – Cumulative Fixed Deposits And Non-cumulative Fixed Deposits.
What Is Cumulative Fixed Deposit?
The Word Cumulative Literally Means Accumulation. So, A Cumulative Fd Is A Type Of Fixed Deposit Where The Interest Pay-out Is Accumulated Till The End Of The Maturity Period. The Interest You Earn In One Year Or A Cycle Is Reinvested And Added To The Principal Amount, Thus Increasing Your Overall Maturity Value.
In Other Words, The Interest Is Paid With A Compounding Effect. At The End Of The Maturity Period, The Maturity Value Is The Sum Of The Initial Deposit Amount And The Accrued Interest.
Who Should Invest In Cumulative Fd?
This Type Of Fd Is Best Suited For Those Individuals Who Want To Accumulate A Corpus For Their Long-term Goals, Like Building A Retirement Fund Or Buying A House, Etc. It Is Also Suited For Those Who Have A Regular Income Source And Are Not Dependent On The Interest Earned From The Fd For Their Regular Expenses.
What Is A Non-cumulative Fixed Deposit?
In A Non-cumulative Fixed Deposit Account, The Financial Company Pays The Interest Regularly To The Depositor. The Interval Of Interest Credit Can Be Monthly, Quarterly, Half-yearly Or Annually. Generally, Financial Institutions Give You The Flexibility To Choose The Interest Pay-out Period To Suit Your Needs And Financial Goals.
Who Should Invest In Non-cumulative Fd?
Non-cumulative Fd Is The Best Investment Option For Those Who Don’t Have A Regular Income Source, Like Freelancers, Housewives Or Retired Professionals. It Allows Them To Get Regular Income Through Periodical Interest Payouts.
Difference Between Cumulative And Non-cumulative Fd
Although Cumulative And Non-cumulative Fd May Seem The Same, There Are Many Differences Between The Two. Let Us Know The Differences:
Interest Payout
In A Cumulative Fd Account, The Interest Accrues Over A Period Of The Deposit Period, And It Is Paid To You Only Once Upon Maturity, I.e., At The End Of The Deposit Term.
On The Other Hand, In A Non-cumulative Fd Account, The Interest Is Paid At Regular Intervals Throughout The Tenure. This Allows You To Get Regular Income And Take Care Of Your Expenses.
Income Flow
In Cumulative Fixed Deposit, You Don’t Get Regular Income, But You Get A Lump Sum Amount At The End Of The Deposit Period. With A Non-cumulative Fixed Deposit, You Get Regular Income Throughout The Tenure. But The Payout You Get At The End Of The Term Is Much Less Than What You Get In Cumulative Fd.
Reinvestment
In A Cumulative Fixed Deposit, The Interest You Get On The Deposit Is Reinvested And Added To The Principal Amount. This Leads To Higher fd interest rate Earnings Than Non-cumulative Fd.
In Contrast, In A Non-cumulative Fixed Deposit Account, There Is No Reinvestment Option As The Interest Is Paid Regularly. This Means The Total Interest Payout Is Lesser Than The Cumulative Fd.
Cumulative Fd Or Non-cumulative Fd- Which One Should You Choose?
The Choice Between Cumulative Fd And Non-cumulative Fd Must Be Based On Your Interest Payment Preference And Overall Investment Goal, You Can Also Calculate Interest On Your Investments With Fd Calculator Online. If Your Primary Purpose Is To Get A Secondary Income Or Get A Regular Pension In The Post-retirement Life, You Must Invest In Non-cumulative Fd. But, If You Are Looking To Accumulate A Sizeable Corpus For Your Long-term Goals And Multiply Your Savings At An Exponential Rate, You Must Invest In A Cumulative Fd.
