Fixed deposits are a very common investment choice among many mainly due to the guaranteed returns that they provide. These guaranteed returns are provided in the form of interest that is calculated based on the FD interest rate provided by a bank. Based on the interest payout, FDs are classified into cumulative and non-cumulative FDs. Let us have a look at what they are.
Types of Fixed Deposit
There are 2 main types of fixed deposits such as the following:
- Cumulative FD
In a cumulative fixed deposit, the interest gets compounded every quarter or every year. You can withdraw this interest amount along with the capital that you have invested at the end of the tenor. The tenure for a cumulative FD ranges from 6 months to 10 years. If you invest ₹1 Lakh in a cumulative FD, here is how your interest payouts and final amount would look like.
- Non-Cumulative FD
In a non-cumulative FD, you can expect regular payouts from the FD. In this type of FD, your interest does not get compounded. It remains the same throughout the tenure. This type of FD has a tenure between 6 months and 10 years. Here is how a non-cumulative FD payout looks like if you invest ₹1 Lakh.
Depending on your financial needs and whether you would like regular payouts or would like to hold the investment for a long tenor, you can choose between a cumulative and a non-cumulative FD.