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Types of Fixed Deposits: Cumulative and Non-Cumulative Fixed Deposits

SEBI found that more than 95% of Indian households preferred investing in fixed deposits (FDs) back in 2017. Few reasons behind the popularity of FDs are their high rate of interest, variable tenors, and availability from the majority of financial institutions.

There are two types of fixed deposit: cumulative and non-cumulative, offering different interest pay-out frequencies.

Cumulative Fixed Deposits

Cumulative FDs provide returns after maturity. Meaning, you receive your investment along with interest after the completion of its tenor, which can range from 12 to 60 months.

You can invest in a cumulative fixed deposit if you have long-term plans and a higher rate of interest.

When to opt for a Cumulative FD?

Cumulative FDs are exceptional when you seek to expand your savings. These can also be helpful if you have a big-ticket expense lined up. For example, invest your savings for 5 years if you are planning a wedding at that time.

Non-Cumulative Fixed Deposits

Another type of FD is a non-cumulative fixed deposit which provides interest returns on a monthly, quarterly, half-yearly, and annual basis. The principal amount remains invested throughout the tenor, and you only receive the interest depending on the chosen frequency.

The interest rate on non-cumulative FDs depends on the interest payout frequency. Annual pay-outs will provide a higher rate of interest than monthly ones.

When to opt for a Non-Cumulative FD?

Non-cumulative fixed deposits are superb if you want regular income. These FDs can help you to manage your recurring short-term expenses and monthly obligations.

Benefits of Cumulative and Non-Cumulative FDs

Lucrative Rates of Interest

Bajaj Finance offers Fixed Deposits with the rate of interests that can go up to 8.75%. Senior citizens also receive an additional 0.35% interest. You can also opt for a special 15-month fixed deposit that offers 0.25% more interest.

Guaranteed and Assured Returns

Returns on fixed deposits are guaranteed and assured as these are not market–linked, unlike mutual funds.

Comes with Stable Ratings

Both these types of fixed deposit hold FAAA rating from CRISIL and MAAA rating from ICRA guaranteeing their safety and stability.

Income Tax Benefits

Investing in tax-saver fixed deposits with a lock-in period of 5 years can help you avail tax benefits. You can claim tax benefits of up to Rs. 1.5 Lakh in a year under Section 80C of the Income Tax Act.

Offers Flexibility

Some financial institutions even offer the option to withdraw funds from your fixed deposits anytime against a minimal penalty charge.

Loans Against Fixed Deposits

You can avail Loans Against Fixed Deposit from Bajaj Finserv. While their cumulative FDs offer up to 75% of the sum available as loan amount, non-cumulative FDs provide up to 60%. You also don’t have to go through a lengthy documentation process or pay charges when foreclosing or part pre-paying the loan.

Make sure to calculate your returns before you invest in any of these types of fixed deposit. An FD interest calculator can help you out precisely to do so.

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