Fixed deposits (FDs) have long been one of the most popular investment options for individuals seeking steady returns with minimal risk. However, when investing in FDs, you’ll often come across two key types: cumulative and non-cumulative fixed deposits. Understanding the difference between these two can help you make informed decisions based on your financial goals and liquidity needs.
Before we dive into the details, it’s worth mentioning that using a fixed deposit calculator can help you get a clear idea of the returns you can expect from your investment. Let’s explore the differences between cumulative and non-cumulative FDs.
Cumulative Fixed Deposit
In a cumulative fixed deposit, the interest earned is not paid out at regular intervals but is compounded and paid at the time of maturity. This option is ideal for investors who don’t need regular income and prefer to let their investments grow over time.
The power of compounding makes cumulative FDs attractive for those with long-term financial goals. Since the interest is compounded periodically (usually quarterly), the returns on maturity can be significantly higher compared to non-cumulative FDs.
For example, if you invest Rs. 1,00,000 in a cumulative FD for 5 years at an interest rate of 6.5%, using a fixed deposit calculator, you can estimate how much you’ll receive upon maturity, considering the compounded interest.
Benefits of Cumulative Fixed Deposit:
- Higher returns due to compounded interest.
- Ideal for long-term investments.
- Best suited for those who don’t need regular payouts.
Non-Cumulative Fixed Deposit
On the other hand, a non-cumulative fixed deposit pays interest at regular intervals, which could be monthly, quarterly, half-yearly, or annually. This makes non-cumulative FDs ideal for individuals looking for a steady income source. The principal amount remains locked in for the entire duration, and only the interest is disbursed based on your chosen frequency.
For instance, if you are retired or prefer a consistent cash flow, you can opt for a non-cumulative FD that provides regular payouts to supplement your monthly income. You can use a fixed deposit calculator to estimate the interest payouts based on your chosen frequency.
Benefits of Non-Cumulative Fixed Deposit:
- Regular interest payouts (monthly, quarterly, half-yearly, or annually).
- Suitable for individuals needing a steady income.
- Flexibility to choose interest payout frequency.
How to Choose Between Cumulative and Non-Cumulative FDs?
Choosing between a cumulative and non-cumulative FD largely depends on your financial needs and goals. If you want to grow your investment over time and don’t need regular income, cumulative FDs may be the better choice. However, if you require periodic payouts to meet living expenses, non-cumulative FDs offer the advantage of regular income.
Additionally, many investors are now exploring online platforms such as mStock, Zerodha, Groww, and Upstox to diversify their portfolios. Though these platforms are mostly known for providing access to online trading apps and demat accounts, they also offer useful tools like fixed deposit calculators to help you make informed investment decisions.
Opening an FD and Managing Your Investments
Opening an FD is a straightforward process. Many banks and financial institutions offer the option to open fixed deposits online, simplifying the investment process. If you’re already managing your investments through an online trading app, you can easily integrate FDs into your portfolio.
Moreover, holding your investments in a demat account allows for more seamless management. Whether it’s shares, bonds, or FDs, a demat account consolidates all your investments, making it easier to track and manage.
Conclusion
Both cumulative and non-cumulative fixed deposits have their unique benefits, and the right choice depends on your financial needs. If you’re looking for long-term growth, cumulative FDs with compounded interest will serve you well. However, if you prefer regular payouts, non-cumulative FDs are the way to go. No matter which option you choose, tools like a fixed deposit calculator can help you estimate your returns and plan your investment better. Platforms like mStock, Zerodha, Groww, and Upstox make it easy to manage and diversify your investments, ensuring that you achieve your financial goals with minimal hassle.