Understanding Cumulative and Non-Cumulative Fixed Deposits (FDs)

Posted on Tuesday, May 28th, 2024 | By IndusInd Bank

Fixed Deposits (FDs) are one of the most popular choices for consumers looking to earn assured high returns on their savings. FDs give you assured returns with almost no risk. But one important decision to make when investing in FDs is choosing between cumulative and non-cumulative options.  

So, what exactly are Cumulative and Non-Cumulative FDs? Let’s delve into what each option entails in this blog. 

What are Cumulative FDs?  

In a cumulative FD, the interest earned on your principal amount is reinvested into the FD at regular intervals, typically quarterly or annually. This means that interest is compounded over the investment tenure, leading to higher overall returns. However, the interest earned is not paid out to the investor during the investment period but is instead added to the principal amount.  

Let’s consider an example of Cumulative FDs: 

Principal Amount: ₹1,00,000 

Interest Rate: 7% per annum 

Tenure: 3 years 

Frequency: Annually compounding 

What you will receive is: 

Total Amount after 3 years: ₹122,504.41 

Total Interest Earned: ₹22,504.41 

Benefits of Cumulative FDs:   

1. Higher Overall Returns: Compounding interest leads to higher returns over time.  

2. Convenience: Investors do not need to track or manage interest payouts regularly.  

3. Ideal for Long-Term Goals: Cumulative FDs are well-suited for long-term financial goals where the focus is on maximizing returns.  

What are Non-Cumulative FDs?  

Non-cumulative FDs pay out the interest earned at regular intervals, such as monthly, quarterly, half-yearly, or annually. This means that investors receive a steady stream of income throughout the investment period, making it suitable for those who require regular income from their investments.  

Let’s consider an example of non-cumulative FDs: 

Principal Amount: ₹1,00,000 

Interest Rate: 7% per annum 

Tenure: 3 years 

Frequency: Quarterly payout 

What you will receive is: 

Quarterly Interest Payout: ₹1,750 

Total Interest Earned over 3 years: ₹21,000 

Principal Amount returned after 3 years: ₹100,000 

Benefits of Non-Cumulative FDs:  

1. Regular Income: Investors receive periodic interest payments, providing a source of income.  

2. Flexibility: Investors can choose the frequency of interest payouts based on their cash flow requirements.  

3. Suitable for Short-Term Needs: Non-cumulative FDs are ideal for individuals looking to supplement their income or meet short-term financial needs.  

Why book an IndusInd Bank FD?  

When it comes to choosing the right FD option for your financial goals, IndusInd Bank offers a range of flexible and rewarding FD solutions tailored to meet your specific needs. With IndusInd Bank FDs, you can enjoy:  

1. Competitive Interest Rates: IndusInd Bank offers attractive interest rates of up to 7.75% p.a. on both cumulative and non-cumulative FDs, ensuring that your savings grow steadily over time.  

2. Flexible Investment Tenures: Whether you’re looking to invest for a few months or several years, IndusInd Bank offers flexible investment tenures to suit your preferences.  

3. Convenient Online Account Opening: With IndusInd Bank, you can open an FD online in just a few clicks, saving you time and hassle.  

4. FD booking with your linked Savings Account: When you open your Fixed Deposit and link it to the IndusInd Bank Savings Account, you not only ensure high returns, but also get access to seamless access of funds with returns getting deposited directly to your linked savings account. 

In conclusion, understanding the differences between cumulative and non-cumulative FDs can help you make an informed decision based on your financial objectives and cash flow requirements. With IndusInd Bank FDs, you can enjoy competitive returns, flexibility, and convenience, making it the ideal choice to grow your savings effectively. So, what are you waiting for? Open your IndusInd Bank Fixed Deposit now! 

Open IndusInd Bank Online Savings Account NOW! 

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.