There are two forms of fixed deposits: cumulative and noncumulative. This division is made based on the amount of interest paid out. The type of FD you have depends on whether you want to collect interest on a regular basis or only when the account matures.
Cumulative Fixed Deposit Means: The term "cumulative" refers to a collection of things. Similarly - the cumulative fixed deposit is one in which interest is accrued or collected until the maturity period ends.
The interest generated over the course of a year or cycle is either reinvested or added to the preceding investment, increasing the principal amount. This, in turn, raises the level of interest. Compounding is used to its full potential here. When your FD matures - you would get the maturity amount, which is equal to the sum of your initial deposit plus interest earned.
This form of FD is best for folks who aren't interested in earning interest. These can be folks who have a steady income or who make a good profit in their various businesses.
If you wish to save a particular sum for the future and don't mind not getting regular interest, you can consider a cumulative fixed deposit.
The interest earned on a noncumulative fixed deposit is paid to the depositor on a regular basis. Interest is paid at intervals ranging from monthly to quarterly and, on rare occasions, semi-annually.
Since this interest is not withheld by the bank - this sort of FD provides a consistent return to investors. Because the power of compounding is not fully realized, it pays less interest than cumulative FD.
The table below clearly distinguishes the two types of Fixed deposits:
| Particlulars | Cumulative Fixed Deposit | Non Cumulative Fixed Deposit |
| 1) Meaning: | Throughout the term of the FD, interest is accrued. | There is no interest accumulated. |
| 2) Payout of the Interest: | Payment is made when the loan matures. | Monthly, quarterly, half-yearly, or yearly payments are accepted. |
| 3) Reinvestment of the Fund: | Yes. The depositor is rewarded with interest on interest. As a result, interest rates on cumulative FDs are greater than on noncumulative FDs. | No. There is no opportunity for reinvestment because the interest has been paid out. The total interest option has a lower interest rate than the cumulative option. |
| 4) Who is it Suitable for? | Those who are salaried or have a steady income | Retirees, stay-at-home mothers and wives, and freelancers |
| 5) The Flow of Income: | During the FD period, there was no income. | Throughout the tenure, there will be a consistent flow of money. |
The following are ten of the top 3-year fixed deposit schemes under Rs.2 crore:
|
Banks |
Interest Rates |
|
Punjab and Sind Bank |
5.30% - 5.80% |
|
Fincare Small Finance Bank |
6.50% - 6.50% |
|
Canara Bank |
5.45% - 5.95% |
|
KTDFC |
6.00% - 6.25% |
|
Yes Bank (Special Rates) |
6.25% - 7.00% |
|
Shriram City |
7.50% - 7.80% |
|
Equitas Small Finance Bank |
6.50% - 6.66% |
|
Mahindra Finance |
6.20% - 6.45% |
|
Lakshmi Vilas Bank (LVB) |
5.65% - 6.15% |
|
Sundaram Finance |
5.77% - 6.27% |
By choosing a cumulative FD, you may maximize your returns. In a cumulative FD, your interest is reinvested on a regular basis on the original deposit amount. This means that the interest you earned in the first cycle is applied to your principal. You would earn interest on this increased principal in the following cycle, as well as additional interest income. This interest compounding continues until the FD tenor expires. By choosing a cumulative fixed deposit over a noncumulative one, you can maximize your fixed deposit returns.