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    Cumulative FD and Non-Cumulative FD

    Fixed deposits are one of the most sought-after financial instruments in India. Millions of Indians put their life savings in fixed deposit schemes offered by banks across India. However, investors should understand the various types of fixed deposits to ensure that they get their desired results on their deposits. A fixed deposit can be placed for a minimum period of seven days. Fixed deposit schemes are offered by all banks in india such as State Bank of India, ICICI Bank, IDBI Bank, HDFC Bank, Bank of India and Corporation Bank among many others.

    What is a cumulative fixed deposit?

    There is no fixed interest payable over a quarter, half-year or annually in a cumulative fd scheme in that the interest rate is compounded every quarter or year and payable at the time of maturity with the principal.

    What is a non-cumulative fixed deposit?

    The interest is paid on a quarterly, monthly or annual basis in non-cumulative fixed deposit schemes. Also, the interest earned monthly from your non-cumulative fixed deposits will be taxable. This scheme is most suitable for an individual who is in need of an interest payout periodically.

    Cumulative versus non-cumulative FD

    There are two types of fixed deposits- cumulative and non-cumulative fixed deposits. There is no fixed interest - half-yearly or every year in a cumulative fixed deposit scheme, i.e, interest rate is compounded every year and then paid at the end of the tenure. For instance, if you deposit in a financial firm at 10% interest under a cumulative scheme, you will not get interest every month or yearly but only at the end of the scheme tenure. At the end of tenure, the firm will pay the principal amount and accumulated interest. In other words, if you have a fixed deposit for Rs.1 lakh, every year, you can earn an interest of Rs.10,000 (simple rate of interest). At the end of the first year, you will get back Rs. 1.10 lakhs.

    If Rs, 1 lakh is put in a non-cumulative scheme, the interest is paid every annually or monthly as decided by a firm. If the interest is paid every quarter, an individual gets Rs.2500. Investors who want a regular income can opt for non-cumulative scheme and those who do not can opt for cumulative schemes.

    In a cumulative or reinvestment fixed deposit, interest is compounded quarterly. The compounded interest is then reinvested with the principal amount. The maturity period of cumulative fixed deposits ranges anywhere from six months to 10 years. Given that in a cumulative fixed deposit scheme, interest is paid at the time of maturity in addition to the principal amount, it is most suitable for individuals who are not in need of regular interest payment. Cumulative fixed deposit schemes can, therefore, be known as money multiplier schemes. On the contrary, in a non-cumulative fixed deposit scheme, interest is payable at fixed frequencies. Non-cumulative fixed deposit schemes are, therefore, suitable for pensioners who are in need of periodical payment of interest.

    Fixed deposit calculator

    The fixed deposit calculator gives the return on the principal amount upon quarterly compounding of interest. Also, the effective yield, the return on a fixed deposit depends on the interest rate and the compounding frequency. In India, most major banks do quarterly compounding to arrive at the maturity value of fixed income deposits. To use the calculator, you will have to fill in details such as the following:

    • Principal amount
    • Interest Rate
    • Period of Deposit
    • Upon filling up of the above details, you will have to submit the data to get the maturity amount, interest and yield.

      For instance, if you have a fixed deposit of Rs. 1 lakh at 8% interest for a period of five years, your total interest receivable will be Rs.48,595. The total maturity amount will be Rs.1,48,595 while the effective yield will be 9.719.

      The compounding interest formula(quarterly) is as follows:

      A= P (1+r/n)nt

      A = final amount

      P = principal amount

      r = nominal interest rate (as a decimal)

      n = number of times interest is compounded (monthly compounding - 12, half-year - 2 and 4 for quarter)

      t = number of years


    Customers can also opt for monthly, quarterly, half-yearly or yearly compounding frequency. For instance, if you deposit Rs.1 lakh for a period of 5 years at 8.5% interest and monthly compounding frequency, you will receive Rs.1,52,730 as maturity amount and 10.54 as effective yield. If your opt for quarterly compounding for the same principal and interest, you will receive Rs. 1,52,279 as maturity amount with an effective yield of 10.45. If you opt for half-yearly compounding frequency for the same principal and interest rate, you will receive Rs.1,51,621 as maturity amount and 10.32 as effective yield. If you opt for compounding frequency on an annual basis, you will receive Rs.1,50,365 as maturity amount and 10.07 as effective yield.

    If you put Rs.1,00,000 in a non-cumulative fixed deposit scheme on an annual basis for a period of five years at 9.25% p.a, your maturity amount will be Rs.1,46,250 (interest earned is Rs.46,250). On a monthly, half-yearly and quarterly basis for the same principal, interest rate and tenure, the maturity amounts will be Rs.1,44,500 and Rs.1,45,250 and Rs.1,44,750 respectively.

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