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Difference between Cumulative FD versus Non-cumulative FD

Personal Finance

Do you want to sign up for a fixed deposit scheme? Learning about the two types of fixed deposits would help. For the uninitiated, there are two types of FDs: cumulative and non-cumulative.

A cumulative fixed deposit scheme accrues interest through a process called compounding. It provides better returns than non-cumulative FD which pays interest periodically.

So, which one should you invest in? The answer depends on your liquidity needs. This blog highlights various aspects of the two FD types to help you make an informed choice. Before we explore the differences, let’s understand what these FDs mean.

What is a Cumulative Fixed Deposit?

A cumulative FD is a type of fixed deposit where the interest is compounded over time and paid on maturity. The interest earned in a year is reinvested and added to the principal. This pumps up the interest amount. In other words, the interest earns more interest. And when the deposit matures, you receive the principal and the accumulated interest.

Cumulative FD works best for those with a long-term investment horizon. Examples include salaried individuals who do not depend on interest income. Hence, invest in this FD to diversify your investment portfolio.

What is Non-Cumulative Fixed Deposit?

In non-cumulative fixed deposits, the depositor receives the interest amount periodically. The interest is paid annually, biannually, quarterly, or monthly, depending on the depositor’s preference. Since the power of compounding plays no role here, the returns are less than the cumulative FD.

Non-cumulative FD works best for retirees, freelancers, or homemakers without a fixed income.

Difference Between Cumulative and Non-cumulative Fixed Deposit

Now that you understand the meaning of the two FD types, let us understand their differences:

 Given below are the major differences between cumulative FD and non-cumulative FD:

Payout of Interest

The payout frequency is one of the major differences between cumulative and non-cumulative FD. In the case of cumulative FD, the interest income remains locked in for the entire tenure. However, for non-cumulative fixed deposits, the interest is paid out periodically depending on the choice/preference of the investor. 

The interest on the cumulative fixed deposit compounds every three months and is paid at maturity. On the other hand, non-cumulative fixed deposits do not harness the power of compounding. Based on their requirements, the depositor can choose from different interest payout options, from monthly to annually.

Income Frequency

In cumulative fixed deposits, the depositor does not earn extra income during the investment term. The entire income, with the interest accrued, is paid as a lump sum at the end of the term, on maturity. 

If you invest in non-cumulative FD, you will receive constant payouts. In other words, the FD will act as an income source.


While you will not receive constant income with cumulative FD, you will get bigger returns as the interest compounds. The maturity period for cumulative fixed deposits lies between six months and ten years. The cumulative FD is therefore a suitable option for individuals who wish to receive a fixed income at the end of their deposit tenure. Often, this type of fixed deposit is also referred to as a money multiplier. If you do not want a monthly income but wish to use the FD simply to build a corpus, go for cumulative FD. It is best suited for people with a stable income.

If you have liquidity needs and want to use your savings to generate consistent income, opt for a non-cumulative FD. Therefore, non-cumulative FD is a reliable option for freelancers or retired individuals. In other words, it suits individuals without a fixed income source.

Which is Better: Cumulative FD or Non-Cumulative FD?

It can take time to decide which account is right for you. As you can see, cumulative FD accounts offer many benefits. However, non-cumulative FD accounts also provide the same benefits. The main difference lies in the interest payouts. Which one to choose out of the two depends on your expenses and how much you wish to save over a specific period.


A fixed deposit is a practical investment option for those looking to save money for the future. A cumulative fixed deposit (FD) offers investors the advantage of cumulative interest over time. Non-cumulative FD provides investors with the same returns without the cumulative interest. However, both FDs offer great returns with minimal risks.

If you are not familiar with cumulative and non-cumulative FD, reach out to professionals at Piramal Finance to help you with the entire procedure. Being experts in their field, they will help you make an informed choice.