A fixed deposit (FD) is a popular savings option that offers a safe way to grow your money over a fixed period at a predetermined interest rate. However, there are two types of fixed deposits you can choose from: cumulative and non-cumulative.

Cumulative Fixed Deposit: In this type, the interest earned is not paid out during the tenure. Instead, it is reinvested and compounded. The entire amount, including the principal and interest, is paid out at maturity. This option is ideal if you do not need regular income and want to maximize returns.

Non-Cumulative Fixed Deposit: In this type, the interest is paid out at regular intervals — monthly, quarterly, half-yearly, or annually, depending on your preference. This is suitable for individuals who require a steady income, such as retirees.

Key Differences:

• Payout: Cumulative FDs pay at maturity, while non-cumulative FDs pay interest regularly.
• Returns: Cumulative FDs generally offer higher effective returns because of compounding.
• Suitability: Cumulative FDs are better for wealth growth; non-cumulative FDs are better for regular income needs.

Understanding these options helps you choose the one that matches your financial goals.