Cumulative And Non-Cumulative fixed Deposit Schemes


If you’re thinking of investing in fixed deposits, congratulations! You’ve taken a solid step forward in securing your financial future.

But before you go to the nearest bank and lock in your money, there are a few things that you should know about the types fixed deposits there are. Knowing the difference can mean the difference between having a safe investment that continuously grows and having to pay taxes and penalties for premature breakage.

Cumulative fixed Deposit Schemes

A cumulative fixed deposit is one where the interest in the principal continuously increases, without any payout to the investor prior to the time of maturity. This means that if you choose to invest in a cumulative fixed deposit, then you will only get the whole amount, that is the principal and the accumulated interest, after your investment reaches maturity, and nothing before that.

This kind of scheme is great for people who don’t need a payout regularly to keep themselves going, or if they can afford to have a lot of money locked up for a period of time without affecting their daily lives. This bodes well for professionals who are currently working and can take care of their expenses through their salary.

The advantage of this kind of fixed deposit is that you can get a lot of interest accumulated at the end of the maturity period, meaning that there will be enough time for the money to actually gestate.

Non-Cumulative Fixed Deposit Schemes

In the case of a non-cumulative fixed deposit scheme, after you make the initial investment, you will be eligible for a payout during set intervals, which you can choose from. This makes it extremely beneficial for those who need a flow of money into their accounts to maintain their daily expenses.

Senior citizens and retirees can opt for this, since they won’t have a salaried income that they can depend on, and will need some kind of cash flow to support their expenses.

The one drawback of this kind of fixed deposit is that the investor will not accumulate the same level of interest that they would otherwise get in a cumulative fixed interest, since payouts are made regularly. So, the amount of money that you receive at the end of the maturity period may be smaller than the amount that you would otherwise receive in a cumulative scheme.

Are These Taxable?

This is true for any fixed deposit. Taxable comes into the picture once it exceeds the exemption limit and they will be a source of income that you will be taxed on.

Generally, fixed deposits are taxable once they accrue an interest of 10,000 rupees a year. If your gain is lesser than that, they will not deduct any amount from your investment. One method that you can use to ensure that your investment isn’t taxed is to split up your investments accordingly, so that the interest that you gain on any one investment is always less than 10,000 rupees.

This means that you can have multiple investments, all of which accrue less than 10,000 rupees, and still have a sizable income coming in for yourself.

Fixed deposits are a great way to ensure that your money doesn’t sit in the bank and do nothing. Better than spending it all the time, you can have your money work for you and ensure that you can always have something to fall back on in the case of a rainy day.

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