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Investing in a Cumulative FD Versus a Non-Cumulative FD
by Prashant Kapadia/NHN
Pune, Maharashtra, India:One of the safest and most sought-after investment instruments in the market today, Fixed Deposits (FDs) offer both protection of a fixed amount as well as a regular flow of income. At the same time, investing in FDs helps investors meet their financial goals over time.
FDs can be categorised as cumulative and non-cumulative. In each form, the interest is payable at specified frequencies.
Investors can avail of the several variations offered by Bajaj Finance Limited per their specific requirements. However, the most common query raised by investors is which is better – Cumulative or Non-cumulative FD?
This bifurcation is based on whether one decides to receive interest earned on their investment regularly or get it as payment on maturity. Investors can determine which Bajaj Finance online FD option suits their requirements the best considering the following information.
Cumulative Fixed Deposit
In cumulative Fixed Deposits, ‘cumulative’ implies accumulation. This means that the interest is accumulated, or collected, till the end of the maturity period that is chosen by the investor.
For example, today if an investor invests Rs. 1,00,000 for a tenor of 36 months (3 years) at an interest of 7% offered by Bajaj Finance Limited, they would earn a cumulative interest of Rs. 22, 504 at the time of maturity.
Here the interest earned in a year or one cycle is reinvested/added to the previous principal amount invested, thereby increasing it. This boosts the interest using the principle of compounding. When one’s fixed deposit matures, they receive an amount that is a total of their initial deposit plus the accumulated interest based on the applicable FD interest rates. Investors can find out the best interest rates offered by Bajaj Finance Limited and the maturity amount using the FD Calculator.
Investors can even opt for a stable and secure monthly investment option with a Systematic Deposit Plan – Single Maturity Scheme offered by Bajaj Finance Limited. Here, one can deposit a fixed amount regularly to create a gradual, and disciplined corpus.
Who should select a Cumulative FD
For investors interested in enhancing their returns and looking to fulfil long-term goals, the cumulative FD option is the best way to go. The interest that one would receive is reinvested regularly. The interest which is generally accrued quarterly or yearly in the first cycle is added to the principal amount invested, thereby increasing it. This increased principal becomes the new amount on which the interest is calculated in the second cycle. Investors, therefore, earn a higher interest which continues till the end of the fixed deposit tenure. This increases their returns to the maximum, especially with the attractive FD interest rates offered by the Bajaj Finance online FD.
Non-Cumulative Fixed Deposit
With Non-cumulative FDs, investors can receive the interest accrued as regular payments. By selecting a non-cumulative option with a Bajaj Finance online FD, investors can select payout at monthly, quarterly, half-yearly, or even annual intervals.
For example, today if an investor selects to invest Rs. 1,00,000 in Non-cumulative Fixed Deposit for a tenor of 36 months (3 years) from Bajaj Finance Limited, they would earn the below interest basis the period selected
| Period |
Interest Rate |
Interest Payout |
| Monthly |
6.79% |
Rs. 566 |
| Quarterly |
6.82% |
Rs. 1,705 |
| Half yearly |
6.88% |
Rs. 3,440 |
| Yearly |
7% |
Rs. 7,000 |
This option does offer lower interest because it is not fully compounded. Investors can check out the different FD interest rates offered with the Fixed Deposit Calculator.
Who should select a non-cumulative FD Investors can go for Non-Cumulative FD if they are dependent on regular payouts as a source of income to meet their financial goals.
The Final Choice:Depending on their preference of interest payout, investors can choose which FD type to select. If one’s primary requirement is to have an add-on to their existing income or provide for pension post-retirement, they should select Non-Cumulative FD. If one is looking to multiply existing savings exponentially, then pick Cumulative FD without a doubt.
About Bajaj Finance Limited:Bajaj Finance Limited, the lending company of Bajaj Finserv group, is one of the most diversified NBFCs in the Indian market catering to more than 44 million customers across the country. Headquartered in Pune, the company’s product offering includes Consumer Durable Loans, Lifestyle Finance, Lifecare Finance, Digital Product Finance, Personal Loans, Loan against Property, Small Business Loans, Home loans, Credit Cards, Two-wheeler and Three-wheeler Loans, Commercial lending/SME Loans, Loan against Securities and Rural Finance which includes Gold Loans and Vehicle Refinancing Loans along with Fixed Deposits. Bajaj Finance Limited prides itself on holding the highest credit rating of FAAA/Stable for any NBFC in the country today. It is also the only NBFC in India with the international ‘BBB’ with stable outlook for long-term, by S&P Global Rating.