Key Takeaways
- Cumulative FDs compound interest and pay everything at maturity.
- Non-cumulative FDs pay interest at regular intervals.
- Cumulative usually yields a higher maturity value.
- Choose based on whether you need income now or growth later.
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Cumulative FD
In a cumulative FD, the interest earned is not paid out; it is added back and earns further interest. You receive the full principal plus accumulated interest at maturity. Because of compounding, this option generally gives the highest maturity value.
Non-cumulative FD
A non-cumulative FD pays interest at chosen intervals — monthly, quarterly, half-yearly, or yearly. It suits people who want a regular income stream from their deposit, such as retirees, but the total interest is typically a little lower because payouts are not reinvested.
Illustration: ₹5 lakh for 3 years at 7%
Take a ₹5,00,000 deposit at an assumed 7% a year, with the bank compounding quarterly.
- Cumulative: nothing is paid out; interest is added to the deposit every quarter. Maturity value ≈ ₹5,00,000 × (1 + 0.07/4)12 ≈ ₹6,15,720, i.e. ₹1,15,720 of interest.
- Non-cumulative, quarterly payout: the bank pays ₹5,00,000 × 1.75% = ₹8,750 every quarter. Over 12 quarters that is ₹1,05,000, and the ₹5 lakh principal is returned at the end.
The ₹10,720 gap is the interest-on-interest the payout option gives up. It is not "lost" if you genuinely need the cash flow — a retiree paying monthly bills from the payouts is using the deposit for exactly what it is designed for.
How to decide
- Need regular income? Non-cumulative with monthly or quarterly payout. Monthly payouts are usually paid at a slightly discounted rate because the bank pays earlier.
- Saving for a future lump sum? Cumulative, so every rupee of interest keeps earning.
- Tax is the same either way: interest is taxable as income when it accrues or is paid; TDS applies above the bank's threshold in both cases. See how FD interest is taxed.
Use the FD calculator for the cumulative maturity value, and multiply principal by the periodic rate for the payout alternative.
How to choose
- Need regular income now → non-cumulative.
- Want maximum growth and do not need interim payouts → cumulative.
The FD calculator models the cumulative case; reduce the compounding frequency to see how payout timing changes the outcome.
Sources
We reference primary and official sources. Rate- and rule-dependent details must be verified against the latest official information.
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Related Guides
How Is Interest on FDs and RDs Taxed?
Interest earned on fixed deposits and recurring deposits is fully taxable as 'income from other sources' at your slab rate. Banks may deduct TDS above thresholds, but you owe tax on the interest either way. The post-tax return is what to compare against alternatives.
bankingHow Is FD Interest Calculated?
FD interest is calculated using compound interest. The maturity value depends on the principal, the interest rate, the term, and how often interest is compounded.
bankingWhat Is a Fixed Deposit?
A fixed deposit is a deposit placed with a bank for a fixed term at an interest rate agreed at the time of booking, offering predictable returns and high capital stability.