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Cumulative Fixed Deposit

Cumulative fixed deposit is a fixed deposit type in which the interest is compounded every quarter or year and paid at FD maturity along with the principal.

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What is a Cumulative Fixed Deposit?

In Cumulative Fixed Deposit, the collection of interest is done till the end of the FD tenure. The interest earned in one year or in one cycle is reinvested or added to the previous principal, thereby enhancing the principal amount and increasing the interest in return. One of the key reasons for cumulative fixed deposits being highly sought after is that on the FD maturity, the investor receives the maturity amount that is a total of the initial deposit amount plus accumulated interest.

Features of Cumulative Fixed Deposit

Below mentioned are some of the major features of cumulative fixed deposit:

  • Interest Collection: The cumulative fixed deposit interest is collected or accumulated till the end of the fixed deposit maturity period or tenure. There is no concept of instant interest payout in the case of cumulative fixed deposit.
  • Compounded or Reinvested Interest: Under cumulative fixed deposit, the interest can be collected or reinvested. Paying off facility is not available.
  • Better Interest: Under cumulative fixed deposit, the investor gets the benefit of much better interest at the end of the maturity period.
  • One-time Interest Payment: The interest income is paid off one-time and not on a regular basis.

Eligibility for Cumulative Fixed Deposit

People who are eligible to invest in cumulative fixed deposit include:

  • Residents of India
  • Hindu Undivided Families

Cumulative fixed deposit may be eligible for any to invest in, however, it proves to be an excellent choice for investors who wish to grow their savings or create a higher corpus for their investment goals.

How Cumulative Fixed Deposit Works?

Under a cumulative fixed deposit, the interest earned in one year or cycle is reinvested or added to the previous principal. This addition of accumulated interest increases the principal amount. This, in turn, ultimately ends up in boosting the interest. With the power of compounding, at the time the FD matures, the investor receives the maturity amount. Note that the maturity amount is the initial deposit amount along with the accumulated interest.

Things to Remember Before Investing in Cumulative Fixed Deposit

If you are willing to invest in cumulative fixed deposit, here are a few things you should need to be aware of include:

  • The interest is compounded on an yearly basis.
  • The accumulated interest will be paid out at the time of FD maturity along with the principal.
  • No periodic income will be generated under cumulative fixed deposit.
  • In cumulative deposit, the interest will be compounded before the tax deduction.
  • Under the cumulative fixed deposit option, you can invest in a tax-saving fixed deposit with 5-year investment tenure.

Documents Required for Cumulative Fixed Deposits

Below mentioned is the list of documents that you would require to submit while investing in a cumulative fixed deposit:

  • Duly filled cumulative fixed deposit form.
  • Recent passport size photographs.
  • Identity proof such as Aadhaar Card, Passport, PAN card, Senior citizen ID card, Voter ID card, Driving license
  • Address proof such as Passport, Telephone bill, Electricity bill, Bank Statement with Cheque, Certificate or ID card issued by Post office.

Before submitting the documents for your cumulative fixed deposit, make a note of the below mentioned things:

  • All details must be filled in correctly.
  • Avoid overwriting in the form as it can lead to errors. If oversigned, ensure countersign.
  • Provide a permanent address.
  • Provide a permanent telephone number.

Is Cumulative Fixed Deposit the Right Choice for You?

The choice of investing in a cumulative fixed deposit is totally dependent on your specific requirements. If you want to create a deposit over a longer term or in other words, if you do not need a periodic income, cumulative fixed deposit would be an ideal solution to go with. Retired individuals and pensioners can choose to skip cumulative fixed deposits as they may need a regular source of income to support their needs. On the contrary, individuals who wish to save a particular amount for their future and have no steady fund requirements, can easily go for cumulative fixed deposits.

Why Should You Choose Life Insurance Over Cumulative Fixed Deposit?

While you may be planning to invest in a cumulative fixed deposit to exponentially enhance your savings, do not forget that life insurance will offer you multiple benefits that your FD may not.

Life insurance is one of the smartest decisions you can make. It is a contract between an insurer and an individual under which the insurance company promises to provide a specific amount in the case of the unfortunate death of the life assured or on policy maturity.

Take a quick look at the below mentioned reasons that make life insurance a worthwhile choice over cumulative fixed deposit:

  • Life insurance is the ultimate package of insurance and investment. You can get yourself insured as well as invest at the same time.
  • Life insurance will allow you to cover yourself for as long as you want, even if it means the entire lifetime.
  • Life insurance will take care of you against risks and make sure your family is not left alone struggling financially. Your life insurance will provide your loved ones with financial stability in your absence.
  • Life insurance will make sure you are covered for a longer period than you actually pay for.
  • Life insurance will give you the freedom to choose a plan type like retirement plan, savings plan and more based on your specific needs.
  • Life insurance will come with tax benefits under Section 80C and Section 80D of the Income Tax Act, 1961.

Disclaimer: The above information in relation to Fixed Deposits is for education purpose only and not to be construed as investment advice. Consultation with an investment advisor prior to any investment decision is highly recommended.

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FAQ About Cumulative Fixed Deposit

  • Can cumulative fixed deposit help me multiply my savings?

    Yes! Cumulative fixed deposits can help you multiply your savings at an exponential rate by accumulating your interest and paying you a huge lump sum amount at maturity. 

  • Who should go with a cumulative fixed deposit?

    An individual who has the primary investment goal of fueling their goals financially must go ahead with a cumulative fixed deposit. 

  • How is cumulative interest credited for fixed deposits?

    Cumulative interest for fixed deposits is credited to the fixed deposit account and paid out at when the investment tenure ends. 

  • Will I get a fixed interest every quarter, half-year or annually under cumulative fixed deposit?

    No! You will not get a fixed interest on quarterly, half-yearly or annually. However, under cumulative fixed deposit, your interest rate will get compounded every quarter or yearly and you will get it on FD maturity with the principal. 

  • What is the minimum tenure for which I can invest in a cumulative fixed deposit?

    The minimum tenure for which you can invest in a cumulative fixed deposit is 7 days. 

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