Cumulative Vs Non-Cumulative Fixed Deposits: A Detailed Comparison

8 min read • Updated 26 September 2023
Written by Anshul Gupta
Cumulative vs Non-Cumulative FD: A Detailed Comparison

Understanding the difference between cumulative and non-cumulative FDs is important for anyone considering investing. Cumulative FDs add the interest back to the principal and give you the total amount. In contrast, non-cumulative FDs give you interest payouts at regular intervals.

This key difference means they suit different needs and financial goals. Knowing this helps people make smart choices, matching their investment with what they need regarding financial goals and access to their money.

What is a Fixed Deposit?

In a fixed deposit, you invest a lump sum amount with a bank, post office or NBFC for a fixed period at a predetermined rate of interest. The tenure of an FD can vary from 7 days to 10 years. Fixed Deposits generally allow investors to make premature withdrawals, but some financial institutions may charge a penalty fee. 

The interest paid out on the FD could be monthly, quarterly, half-yearly, or yearly to suit the investor’s needs. The FD’s tenure is a primary determining factor of the interest rate because with time the holding period risk increases thereby causing an increment in the interest rate. This in practice translates to a 7-day FD carrying a lower rate of interest than a year-long FD.

Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates

What is a Cumulative Fixed Deposit?

The word cumulative means to ‘increase by successive additions.’ In a cumulative fixed deposit, the interest earned on an FD is added back to the principal and reinvested. This means that you will not receive regular interest payouts in Cumulative Fixed Deposits. 

Consequently, the next interest payment is calculated on the entire amount, including the principal and the reinvested interest. The reinvestment happens throughout the tenure, and a lump sum amount can be redeemed at maturity. The lump sum, hence, comprises both — the principal and the accumulated interest.

Who should invest in a Cumulative Fixed Deposit?

People who are not dependent on their investments for a regular income stream can opt to invest in a cumulative FD. So, salaried employees and people earning a stable income from their businesses may find cumulative FDs beneficial. Other than this, if you want a lump sum amount to meet a future goal, you can consider investing in a cumulative FD.

What is a Non-Cumulative Fixed Deposit?

In contrast to its counterpart, non-cumulative FDs regularly pay interest to the investors, either monthly, quarterly, half-yearly or annually. As a result, the returns on non-cumulative fixed deposits are not compounded and have a slightly lower effective interest rate.

Who should invest in a Non-cumulative Fixed Deposit?

People who do not have a regular income stream, such as freelancers, salespeople, retired persons, etc., could opt for a non-cumulative fixed deposit to stabilise their finances. Homemakers or stay-at-home parents can also invest their savings in a non-cumulative FD to create a regular income stream for themselves.

Difference Between Cumulative and Non-Cumulative FD


A cumulative fixed deposit adds the earned interest to the principal amount and is paid at maturity. While in non-cumulative fixed deposits, the interest is paid monthly, quarterly, half-yearly and annually. Cumulative FD offers higher interest rates than non-cumulative FD because if you invest your money for a longer period, you’ll get a better interest rate.

Interest Payout:

One of the key differences between cumulative and non-cumulative FD is how the interest on investment is paid out.

Let’s say you invest Rs. 1 lakh in a cumulative FD for a tenure of 5 years at an interest rate of 6.5%. Below is the table showing the annual interest calculation on the cumulative FD.

                        Cumulative FD
Year 11000006500106500
Year 21065006922.5113422.5
Year 3113422.57372.463120795
Year 41207957851.673128646.6
Year 5128646.68362.031137008.7

As you can see, if you invest in a cumulative FD, the interest at the end of year 1, which is Rs. 6500, is reinvested, and the principal for year 2 becomes Rs. 100000 + 6500 = Rs. 106500. At the end of 5 years, you get an amount of Rs. 137009. Of this, Rs. 37009 is your accumulated interest. 

Alternatively, for a non-cumulative FD of Rs. 1 lakh with a tenure of 5 years and interest rate of 6.5% (annual interest payout), the table of returns will be: 

                        Non- Cumulative FDs
Year 11000006500106500
Year 21000006500106500
Year 31000006500106500
Year 41000006500106500
Year 51000006500106500

As seen above, in a non-cumulative FD, the interest of Rs.6500 is paid out annually to the investor. The total interest amount is Rs. 32500, which happens to be lower than that of a cumulative fixed deposit.

Income Flow:

As seen above, a cumulative FD holder does not receive any payment during the tenure of the FD, after which he receives a lump sum. However, a non-cumulative FD holder enjoys a regular income flow throughout the term of the deposit until maturity. You can also choose the interest payout frequency depending on your unique investment needs.


The interest income, in the case of a cumulative FD, is reinvested into the scheme. As a result, the investor earns interest even on his accumulated interest. In non-cumulative FDs, however, the interest is paid out and the investor only earns interest on the principal they had initially deposited. Consequently, the total returns on a non-cumulative FD are slightly lower than a cumulative FD. 


Due to its regular income stream, a non-cumulative FD is ideal for someone without a stable income, such as artists, salespeople, freelancers, etc. A cumulative FD, on the other hand, is only suitable for someone who doesn’t depend on the FD for a regular income stream, such as salaried employees, people with stable business profits, etc.

ParametersCumulative FDNon-Cumulative FD
Interest IncomeInterest is reinvested, there are no regular payoutsInterest income is paid at pre-chosen regular intervals to the investors
ReinvestmentInterest income is reinvested and paid to the investor at maturity along with principalNo reinvestment
Who should invest?People who do not need a regular income from FDPeople who need a regular income
ReturnsHigher returns due to the power of compounding and reinvestmentThe total returns are lower than the cumulative option.

How to Maximise Your Fixed Deposit Returns?

Maximising your Fixed deposit returns is an end that is accomplished by a variety of factors. The deposit amount, tenure, interest rate, and diversification of FD types are some key factors that decide the maximisation of your FD returns. However, the most crucial aspect to consider is your financial goals and lifestyle, which can impact your decision-making. To maximise your returns, you will have to leverage your deposits for the highest interest rate slab that suits your tenure needs as well.

Always consider the factors affecting returns and make your investment decisions accordingly.


Different people have different goals for financial investment. If your goal is adding to your existing regular income, then non-cumulative FD might serve your purpose. But, if you want to multiply your savings exponentially, consider the cumulative scheme.

You can choose to invest in either of the FDs post conducting due diligence in accordance with your risk profile and financial goals. 

FAQs about Cumulative vs Non-Cumulative FDs

How is cumulative interest credited for fixed deposits?

The periodic interest earned on the cumulative FD is reinvested into the instrument. As a result, the interest keeps earning interest on itself. It is credited as accumulated interest along with the principal amount at maturity.

How is non-cumulative interest credited for fixed deposits?

The periodic interest earned on the deposit in a non-cumulative FD is credited to the investors regularly. Therefore, there is minimal to no compounding of interest in a non-cumulative FD.

What are the benefits of investing in FDs?

The benefits of investing in an FD are:
1. Fixed returns: FDs offer fixed rates of interest on the deposit amount. These returns are not linked to market performance and hence are not subject to any market fluctuations.
2. Hassle-free:You can now open an FD account online with a few clicks. Even if you want to book an FD offline, it requires minimal paperwork. You can easily transfer an FD, renew it automatically, and avail a loan against it.
3. Low Minimum Investment: You can open an FD account with an amount as low as Rs. 1000. This helps people to inculcate an investment habit without investing a large sum.
4. Balance in your portfolio: Fixed deposits can balance the risk in your portfolio. While instruments such as equities and mutual funds carry an element of risk, FDs are relatively less risky. They are safe investments that provide an assured return over a fixed tenure.

What are the disadvantages of a fixed deposit investment?

The disadvantages of investing in FDs are:
1. Low Interest Rate: The interest rate on FDs is usually lower than returns on other market-linked instruments.
2. Taxation: Interest income from FDs is taxable according to your tax slab. So the higher your income, the lower your effective FD returns will be.

Which is better, cumulative or non-cumulative FD?

Whether cumulative or non-cumulative FD is better depends on individual needs; cumulative is ideal for those looking to grow their savings, while non-cumulative suits those needing regular income.

How is non-cumulative interest credited for fixed deposits?

For non-cumulative FDs, interest is credited at regular intervals, usually monthly, quarterly, half-yearly, or annually, providing a steady income to the investor.

Was this helpful?

Anshul Gupta

IIT Roorkee Alumnus and CFA with experience of structuring debt products worth more than 15000Cr for institutional and retail investors.

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