Cumulative FD
Definition
A fixed deposit where interest is compounded and paid as a lump sum at maturity, giving the highest maturity value — as opposed to a non-cumulative FD that pays interest out regularly.A cumulative fixed deposit reinvests the interest: instead of paying it out, the bank compounds it (usually quarterly) and pays the principal plus all accumulated interest at maturity. This produces the highest maturity value for a given rate and tenure, because interest itself earns interest. A non-cumulative FD, by contrast, pays interest out monthly, quarterly or annually for regular income but a lower maturity value. The rate is usually the same; the difference is reinvestment. A cumulative FD's interest is taxable as it accrues each year, not only at maturity.
Related guides
Related terms
- Fixed Deposit (FD) — A deposit that locks a sum with a bank for a fixed term at a pre-agreed interest rate.
- FD Interest Frequency — How often an FD pays interest — monthly/quarterly/annual payout (non-cumulative) for income, or cumulative (compounded, paid at maturity) for the highest maturity value; the rate is usually the same, the difference is reinvestment.
- Compound Interest — Interest calculated on both the principal and previously accumulated interest.
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