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Cumulative FDs over Non-Cumulative FDs: Top 5 reasons

Cumulative FD’s VS Non-Cumulative FD’s

We can categories FDs or Fixed deposits in two types like Cumulative FD and Non-Cumulative FD. Both have their own advantages and non-advantages and different places to implement to get best output.

Cumulative fixed deposits: here, there is a specific time that the payment over investment can be made depending on the deal or contract signed with the financial institution. This type of investment is benefitted from compounding, that is, in this type of investment, the interest earned by a particular investor is added to the principal – this is the amount of money the investor actually put into investment – invested.

In this type of investment, the interest is added to the principal of investment and it is reinvested till the stipulated time is reached.

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Non-cumulative fixed deposits: This type of deposits are those with regular interest payout. That is, for every principal invested, there is a fixed amount of money or predefined percentage of interest rates that will be paid to the investor on a regular basis as income and this could be on a monthly, quarterly or yearly basis. As compared to the cumulative fixed deposits, they offer lower interests to their investors.

5 Reasons to choose Cumulative FDs

  1. Cumulative FDs give quarterly & yearly compound interest added and paid at the maturity of policy.
  2. This is a long term investment and gives multiple times of profit than non-cumulative FD’s.
  3. These can be used as educational or marriage purpose saving schemes because for long term planning as well as more internet compounded. 
  4. No need to manage or check the progress status for FD. It will move periodically. 
  5. Money will be safe as compare to other mutual funds, but also money will be safe with non-cumulative FD.

Invest in Banks

Out there, there are lots of investments available to people who wants a gain over their money. There are two major types of investments, we have the high-risk investment and the low-risk investment.For many people, investment is not just about saving your money, this will also serve as a way of generating income from investors who wants the best gain over their money.

However, as said earlier there are different types of investments,the stocks and equity are high in risk as compared to other form of investments but it gives or provides people with a higher yield and return on their investment. For investors that wants a pretty much and heavy gain over their investment, they can go for this, there are also investment that involves little or no risk popularly referred to as the Fixed deposits. The fixed deposits involve the investment of capital in a bank and other financial institutions and you will be paid based on your choice and preference.

It should be noted that the fixed deposit is safe and more secured. There are two major types of fixed deposits, we have the cumulative fixed deposits and the non-cumulative fixed deposits. Although they are both fixed deposits, they differ from one another based on the type of deal they involve, type of people who can invest in them and how they work. Below is a brief explanation about each of this type of investment.

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The cumulative fixed deposits are usually used by people who want to get a luxury house or car for themselves. They allow their money to accumulate over the years and they get whatever they want to. In the non-cumulative fixed deposit, they are usually used by people who wants a regular source of income rather than their regular salary. Since salaries are insufficient,people look for a way to supplement their source of income and get things done for themselves more easily.

The type of fixed deposit you choose depends on why you want to invest and what you also need the gain of investment for. If you need supplement for your income, then you should go for the non-cumulative type of fixed deposit.

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Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

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