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Difference Between Cumulative and Non-Cumulative FD

We’ve discussed what cumulative FDs and non-cumulative FDs are. Now, let’s take a closer look at the key differences between these two types of fixed deposits. Here’s a table with a cumulative FD vs non-cumulative FD comparison.


Cumulative FD

Non-Cumulative FD

Frequency of interest payout

Only at maturity 

As per your choice (can be monthly, quarterly, half-yearly or annually)

Accumulation of interest

Interest accrues throughout the tenor

Interest is not accumulated and is paid at regular intervals

Periodic income

Not generated 

Generated throughout the tenor

Total interest earned

On account of compounding, the interest earned each year is added to principal and as a result, the total interest earned is higher 

Since the the interest is paid out and not accumulated, there is no compounding, leading to comparatively lower earnings 

Suitable for

Depositors looking to grow their savings and create a higher corpus for investment goals

Depositors looking to fund regular expenses without reducing the principal

Cumulative and non-cumulative FDs are among the safest investment options available for conservative investors who are looking for guaranteed returns today. They are also suitable for aggressive investors who wish to reduce the overall risk in their investment portfolio. So, no matter which category of investors you belong to, both cumulative and non-cumulative FDs may have some benefit for you.


If you are planning to invest in a fixed deposit, though, you need to be aware of what cumulative and non-cumulative FDs are. They each have their own benefits, but to make an informed choice between the two, you should know how they work. Let’s take a closer look at each type of fixed deposit and compare cumulative vs non-cumulative FDs.


cumul fd non cumul

What is a Cumulative FD?

A cumulative FD is a type of fixed deposit where the interest earned on the investment is accumulated or reinvested back into the deposit. This increases the amount on which interest is calculated for the next period, since the principal as well as the interest earned so far count. 


In other words, you earn interest on your interest through the power of compounding. This happens throughout the investment tenor. At the end of this tenor, the total interest accumulated is paid out at maturity. 


Let us take a look at an example to understand how cumulative deposits work. Say you invest ₹1 Lakh in a cumulative FD with a bank for 5 years at an interest rate of 6%. In that case, here is how the cumulative interest on your fixed deposit will be calculated year after year. 


Amount on Which Interest is Calculated

Interest for the Year at 6% p.a.

Closing Balance at the End of the Year





















Who Should Invest in a Cumulative FD?

Cumulative fixed deposits do not pay out the interest earned on a regular basis. Rather, they accumulate the interest over the investment period. Due to this key characteristic, cumulative FDs are best suited for you if you meet any of the following criteria. 

  • If you have a regular source of income to rely on already

  • If you do not need any additional or secondary source of income at the moment

  • If your primary goal is capital appreciation in a safe manner

  • If you want to earn a higher interest on your deposit

What is a Non-Cumulative Fixed Deposit?

A non-cumulative deposit is also a kind of fixed deposit. However, as the name indicates, the interest on such an FD is not accumulated over the investment tenor. Rather, it is paid out to you at regular intervals. This is the key difference between cumulative and non-cumulative FDs. 


In this kind of fixed deposit, the payouts can be made on a monthly, quarterly, half-yearly or annual basis. You do not earn any interest on interest, since the earnings are paid out frequently. Therefore, the power of compounding does not come into effect here. But you do get the advantage of regular income.


Let’s check out an example to understand non-cumulative deposits better. Say you deposit₹1 Lakh in a non-cumulative fixed deposit in a bank. Based on your financial requirements, you can choose the interest payout frequency. Check out the amounts you can earn when you choose different kinds of payout frequencies in the table below.

Payout Frequency 

Non-cumulative Fixed Deposit Interest Rate p.a.

Non-cumulative FD Interest Rate for the Interest Payout Period (A)

Interest Earned per Payout

(A x ₹1,00,000)




(i.e. 6% divided by 12 months)





(i.e. 6% divided by 4 quarters)





(i.e. 6% divided by 2 half-years)





(i.e. 6% divided by 1 year)


Who Should Invest in a Non-Cumulative Fixed Deposit?

The defining characteristic of non-cumulative FDs is that they pay out the interest earned at regular intervals. Keeping this feature in mind, you may benefit from a non-cumulative fixed deposit if you meet any of the following conditions.

  • If you need to replace your primary source of income 

  • If you need some additional income 

  • If you are a retired person

  • If you prioritise regular earnings over capital appreciation 

How to Maximise Your Fixed Deposit Returns?

Making the right choice between cumulative and non-cumulative FDs can help you maximise your FD returns. Ideally, by opting for a cumulative FD, you can earn higher interest overall. 


This is because in a cumulative fixed deposit, the interest you earn is reinvested in the FD account along with the original deposit amount on a regular basis. This means that the interest earned in the first cycle is added to your principal amount, thereby increasing the amount on which interest is calculated.


In the next cycle, you will earn interest on this increased principal, which contains the original deposit amount as well as the interest income earned so far. This is known as compounding of interest, and it is done till the end of the FD tenor. In this way, you can maximise your returns from a fixed deposit by opting for a cumulative FD instead of a non-cumulative one.

Which is Better: Cumulative or Non-Cumulative FD?

The choice between cumulative FDs and non-cumulative FDs is quite easy if you know what your financial goals are. If you wish to supplement your current income or replace it with a regular source of earnings (perhaps like a pension), a non-cumulative FD is a better choice. 


On the other hand, if you are not looking for any extra income but instead want to grow your capital in a safe manner, cumulative FD option is more suitable.


This sums up the differences between cumulative and non-cumulative FDs. Now that you know how they each work and how they can benefit you, you can make a more informed decision about which kind of fixed deposit to choose for your investment portfolio. 


The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort. 

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products. 

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FAQs on Cumulative and Non-Cumulative FDs

A cumulative FD is a kind of deposit where the interest is accumulated over the tenor of the deposit and paid out at maturity. This is the primary difference between a cumulative and non-cumulative FD. In the latter, the interest is paid out at regular interest as per the frequency chosen by you. The payouts can be monthly, quarterly, semi-annual or annual.

Interest earned on a cumulative FD is greater than interest earned on a non-cumulative deposit. The main difference is that in a cumulative deposit, the interest is paid at maturity, while in a non-cumulative deposit, the interest is paid at regular intervals. The answer to which is better between a cumulative and non-cumulative FD depends on your financial goals and requirements.

When it comes to cumulative FDs, interest credits are paid out through an FD account at the end of the investment tenor.

For non-cumulative FDs, the interest credits are transferred to you on a regular basis depending on the payout frequency you choose. This could be a non-cumulative deposit monthly interest, quarterly interest, half-yearly interest, or yearly interest.

The biggest benefit of non-cumulative FDs is the interest payout frequency. This works wonders for those who require a steady influx of income through regular interest payments.

Here’s an example. You have invested ₹1 Lakh in a cumulative FD at an interest rate of 10% for 1 year. Therefore, your interest payout would be ₹1,10,000 at the end of the FD tenor.

This entirely depends on your financial goals. If your goal is to build your corpus and grow wealth for your retirement, non-cumulative FDs are the better choice to make. However, if you wish to build your existing savings significantly, cumulative FDs could be a good decision.

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