Understand the difference between cumulative and non-cumulative FDs. Learn which type suits your financial goals, tax implications, and when to choose each option.
When opening a Fixed Deposit, you'll face a choice: cumulative or non-cumulative. The interest rate is the same, but how you receive returns differs significantly.
The right choice depends on whether you need regular income or want maximum wealth creation.
The Core Difference
| Feature |
Cumulative FD |
Non-Cumulative FD |
| Interest payout |
At maturity |
Monthly/Quarterly/Half-yearly/Yearly |
| Compounding |
Yes (interest on interest) |
No |
| Final amount |
Higher |
Lower |
| Regular income |
No |
Yes |
| Best for |
Wealth building |
Regular income needs |
Calculate both options: Use our FD Calculator to compare returns.
How Each Type Works
Cumulative FD Example
₹10 Lakh for 5 years at 7%
| Year |
Opening Balance |
Interest Earned |
Closing Balance |
| 1 |
₹10,00,000 |
₹70,000 |
₹10,70,000 |
| 2 |
₹10,70,000 |
₹74,900 |
₹11,44,900 |
| 3 |
₹11,44,900 |
₹80,143 |
₹12,25,043 |
| 4 |
₹12,25,043 |
₹85,753 |
₹13,10,796 |
| 5 |
₹13,10,796 |
₹91,756 |
₹14,02,552 |
Total interest earned: ₹4,02,552
Non-Cumulative FD Example (Quarterly Payout)
₹10 Lakh for 5 years at 7%
| Year |
Quarterly Interest |
Annual Total |
Payout |
| Each quarter |
₹17,500 |
₹70,000 |
To bank account |
| 5 years total |
- |
₹3,50,000 |
Principal returned at end |
Total interest earned: ₹3,50,000
The Compounding Difference
| FD Type |
Total Interest (5 years) |
Difference |
| Cumulative |
₹4,02,552 |
+₹52,552 more |
| Non-Cumulative |
₹3,50,000 |
Baseline |
Cumulative earns 15% more interest due to compounding.
When to Choose Cumulative FD
1. You Don't Need Regular Income
| Your Situation |
Choose |
| Salaried with regular income |
Cumulative |
| Building wealth for future |
Cumulative |
| Saving for goal (5+ years away) |
Cumulative |
2. Maximizing Returns is Priority
| Investment Goal |
Cumulative Advantage |
| Child's education (10 years) |
~28% more interest |
| Retirement corpus (15 years) |
~45% more interest |
| Emergency fund growth |
Compounding helps |
3. You're in Lower Tax Bracket
| Tax Bracket |
TDS Impact |
Recommendation |
| 0% (income < ₹7 L) |
File 15G/15H, no TDS |
Cumulative |
| 5-10% |
Minimal impact |
Cumulative |
| 20-30% |
Consider tax timing |
Either |
4. You Want to Avoid Spending Temptation
| Behavioral Factor |
Cumulative Benefit |
| Interest in bank account |
May get spent |
| Interest reinvested |
Forced saving |
When to Choose Non-Cumulative FD
1. You Need Regular Income
| Situation |
Payout Frequency |
| Retiree living on interest |
Monthly |
| Supplementing income |
Quarterly |
| Paying EMI/rent |
Monthly |
2. You're a Senior Citizen
| Benefit |
Details |
| Higher FD rates |
0.25-0.75% extra |
| Regular pension-like income |
Monthly payout |
| Predictable cash flow |
Budget planning |
3. Tax Planning Purposes
| Strategy |
How Non-Cumulative Helps |
| Spread income across years |
Interest taxed each year |
| Avoid large lump sum tax |
No big maturity amount |
| Use basic exemption annually |
₹40K interest exemption (senior citizens: ₹50K) |
Detailed Comparison
Returns Comparison (₹10 L at 7%)
| Tenure |
Cumulative Maturity |
Non-Cumulative Total |
Extra from Cumulative |
| 1 year |
₹10,70,000 |
₹10,70,000 |
₹0 (no difference) |
| 3 years |
₹12,25,043 |
₹12,10,000 |
₹15,043 |
| 5 years |
₹14,02,552 |
₹13,50,000 |
₹52,552 |
| 7 years |
₹16,05,781 |
₹14,90,000 |
₹1,15,781 |
| 10 years |
₹19,67,151 |
₹17,00,000 |
₹2,67,151 |
Longer tenure = Greater compounding advantage.
Cash Flow Comparison
| Aspect |
Cumulative |
Non-Cumulative |
| Year 1 income |
₹0 |
₹70,000 |
| Year 2 income |
₹0 |
₹70,000 |
| Year 3 income |
₹0 |
₹70,000 |
| Year 4 income |
₹0 |
₹70,000 |
| Year 5 income |
₹0 |
₹70,000 |
| At maturity |
₹14,02,552 |
₹10,00,000 |
| Total received |
₹14,02,552 |
₹13,50,000 |
Liquidity Comparison
| Factor |
Cumulative |
Non-Cumulative |
| Regular access to interest |
No |
Yes |
| Break FD for emergency |
Penalty applies |
Can use interest first |
| Flexibility |
Lower |
Higher |
Tax Implications
TDS Rules (Same for Both)
| Condition |
TDS Rate |
| Interest > ₹40,000/year |
10% TDS |
| Interest > ₹50,000 (seniors) |
10% TDS |
| No PAN |
20% TDS |
| Form 15G/15H submitted |
No TDS |
Tax Timing Difference
| FD Type |
When Tax Applies |
| Cumulative |
On accrued interest each year (even if not received) |
| Non-Cumulative |
On interest received each year |
Important: Even cumulative FD interest is taxable annually on accrual basis, not at maturity.
Tax Planning Strategy
Non-Cumulative advantage for high-value FDs:
| Scenario |
Cumulative |
Non-Cumulative |
| ₹50 L FD, 7%, 5 years |
Year 5: ₹3.5 L interest taxable |
Yearly: ₹70K taxable |
| Tax at 30% |
₹1.05 L (if assessed in one year) |
₹21K/year |
Spreading income may keep you in lower bracket.
Choosing Based on Life Stage
Young Professional (25-35 years)
| Recommendation |
Reasoning |
| Cumulative |
Don't need regular income, maximize compounding |
| Tenure |
3-5 years |
| Payout |
Not applicable |
Middle-Aged (35-50 years)
| Recommendation |
Reasoning |
| Cumulative (if stable income) |
Still building wealth |
| Non-Cumulative (if irregular income) |
Income smoothing |
Pre-Retirement (50-60 years)
| Recommendation |
Reasoning |
| Mix of both |
Start transitioning to income |
| Cumulative |
For goals 5+ years away |
| Non-Cumulative |
Practice for retirement income |
Retired (60+ years)
| Recommendation |
Reasoning |
| Non-Cumulative |
Need regular income |
| Payout frequency |
Monthly for expenses |
| Consider |
Senior citizen special FDs |
Payout Frequency Options (Non-Cumulative)
| Frequency |
Interest Calculation |
Effective Rate* |
| Monthly |
Simple interest |
~6.96% |
| Quarterly |
Quarterly compounding |
~7.00% |
| Half-yearly |
Semi-annual compounding |
~7.12% |
| Yearly |
Annual compounding |
~7.00% |
*For 7% stated rate
Note: Less frequent payouts = slightly higher effective rate.
Monthly vs Quarterly Decision
| Choose Monthly If |
Choose Quarterly If |
| Need income for expenses |
Can manage with less frequency |
| Prefer regular deposits |
Want slightly higher effective rate |
| Budgeting monthly |
Have other income sources |
Hybrid Strategy: Best of Both Worlds
FD Ladder with Mixed Types
| FD |
Amount |
Type |
Purpose |
| FD 1 |
₹3 L |
Non-Cumulative (Monthly) |
Monthly income |
| FD 2 |
₹2 L |
Cumulative |
Emergency reserve growth |
| FD 3 |
₹3 L |
Cumulative |
Medium-term goal |
| FD 4 |
₹2 L |
Cumulative |
Long-term growth |
Benefits:
- Regular income from FD 1
- Compounding growth from FDs 2-4
- Staggered maturities reduce reinvestment risk
Income + Growth Strategy
| For Retiree with ₹50 L |
|
| ₹30 L Non-Cumulative |
₹17,500/month income |
| ₹20 L Cumulative |
Grows for future needs |
Real-World Scenarios
Scenario 1: Building Emergency Fund
Goal: ₹6 L emergency fund from ₹5 L
| Choice |
Result |
| Cumulative 3-year FD at 7% |
₹6.13 L (goal achieved) |
| Non-Cumulative |
₹5 L + ₹1.05 L interest (spent?) |
Verdict: Cumulative ensures goal is met.
Scenario 2: Retiree Needing Income
Corpus: ₹40 L | Need: ₹20,000/month
| FD Type |
Amount |
Monthly Income |
| Non-Cumulative at 7.5% |
₹32 L |
₹20,000 |
| Remaining Cumulative |
₹8 L |
Growth for inflation |
Verdict: Non-cumulative for income need.
Scenario 3: Tax-Saving FD
5-year tax-saving FD (80C benefit)
| Type |
Consideration |
| Cumulative |
Most FDs are cumulative only |
| Non-Cumulative |
Few banks offer this option |
Note: Most tax-saving FDs are cumulative by default.
Quick Decision Guide
| Your Situation |
Choose |
Reason |
| Working, stable income |
Cumulative |
Maximize returns |
| Retired, need regular income |
Non-Cumulative |
Monthly cash flow |
| Building goal-based corpus |
Cumulative |
Compounding benefit |
| Supplementing irregular income |
Non-Cumulative |
Income smoothing |
| Short tenure (< 2 years) |
Either |
Minimal difference |
| Long tenure (5+ years) |
Cumulative |
Significant compounding |
| Tax planning needed |
Non-Cumulative |
Spread income |
| Avoid spending temptation |
Cumulative |
Money stays invested |
Conclusion
| Factor |
Winner |
| Higher returns |
Cumulative |
| Regular income |
Non-Cumulative |
| Long-term goals |
Cumulative |
| Retirement income |
Non-Cumulative |
| Simplicity |
Either |
| Tax spreading |
Non-Cumulative |
Bottom line:
- Choose Cumulative if you don't need regular income and want maximum returns
- Choose Non-Cumulative if you need regular cash flow (retirees, income supplementation)
- Use both for a balanced approach that provides income while growing wealth
The decision isn't about which is "better"—it's about which fits your financial needs.
Compare both options: Use our FD Calculator to see returns for cumulative and non-cumulative FDs.
