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Non Cumulative Fixed Deposit

Non-Cumulative fixed deposit is a fixed deposit type in which the interest is payable on a monthly, quarterly, and half-yearly or annual basis.

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What is a Non-Cumulative Fixed Deposit ?

In a non-cumulative fixed deposit, the investor receives regular payouts. The payout of interest is done on a quarterly, monthly, half-yearly or annual basis as per the investor’s choice of payout frequency. The investor can choose the payout frequency of their preference at the time of application.

Non-cumulative fixed deposits do not come with the feature of interest accumulation. Since the interest is paid out at regular intervals, the investor gets a periodic income throughout the tenure of the fixed deposit. As far as the tenure for a non-cumulative fixed deposit is concerned, it lies between the range of 12 months to 60 months.

One of the key things to note about the non-cumulative fixed deposit is that it comes with a low interest rate as the power of compounding is not realized in a proper manner. Moreover, the maturity amount decreases if the payout frequency is high.

Non-cumulative fixed deposits are a great choice for retirees, housemakers, freelancers and others who depend on a consistent income from their investments.

Features of Non-Cumulative Fixed Deposit

Some of the prime features of non-cumulative fixed deposits are as follows:

  • No Interest Collection: Under non-cumulative fixed deposit, the interest is not accumulated or collected.
  • No Facility for Interest Compounding or Reinvestment: Unlike cumulative fixed deposit, non-cumulative fixed deposit does not come with the feature of interest compounding or reinvestment to enhance the overall return.
  • Multiple Interest Payout Options: In non-cumulative fixed deposit, the investor is given the choice to choose the interest payout as per their preference. The investor can choose between monthly, quarterly, half-yearly or annual payout of their FD interest at the time of applying for the fixed deposit.
  • Low Interest: Under non-cumulative fixed deposit, the total interest earned is slightly low as compared to the cumulative fixed deposit option due to the absence of the reinvestment feature.
  • Income Flow: In the case of non-cumulative fixed deposits, there is a regular flow of income throughout the tenure of the fixed deposit.

Eligibility for Non-Cumulative Fixed Deposit

Individuals eligible to invest in non-cumulative fixed deposits include:

  • Residents of India
  • Hindu Undivided Families

Non-cumulative fixed deposits are a superior choice for investors. However, they are advisable for people who wish to receive regular payouts and do not have a fixed source of income. Whether you are a pensioner, homemaker, owner of a small business or an individual looking for a periodic income, go ahead and opt for non-cumulative fixed deposits.

How Non-Cumulative Fixed Deposit Works?

Under a non-cumulative fixed deposit, the interest is not accumulated. Therefore, it is given out at regular intervals. The investor receives regular payouts from their savings on a monthly, quarterly, half-yearly or yearly basis on the basis of the payout frequency chosen at the time of applying for the non-cumulative fixed deposit. It must be noted that the investor cannot reinvest the interest earned as the non-cumulative fixed deposits do not allow interest reinvestment or collection.

Things to Remember Before Investing in Non-Cumulative Fixed Deposit

If you are interested in investing in a non-cumulative fixed deposit, here are a few significant points for you to remember before applying for the FD:

  • There is no accumulation or collection of the interest.
  • The interest is paid out at regular intervals.
  • The interest payout frequency options include monthly, quarterly, half-yearly and annual.
  • If the interest payout frequency is higher, the maturity amount decreases.
  • Non-cumulative fixed deposits are taxable.

Documents Required for Non-Cumulative Fixed Deposits

If you wish to invest in a non-cumulative fixed deposit, check the below mentioned list of documents that would be required:

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

Here is a list of key things to keep in mind before submitting the documents for your non-cumulative fixed deposit:

  • Provide a permanent address.
  • Provide a permanent telephone number.
  • All details must be filled in correctly.
  • Do not overwrite the form. In case of overwriting, make sure you countersign.

Is Non-Cumulative Fixed Deposit the Right Choice for You?

Whether or not the non-cumulative fixed deposit is the right choice for you depends on your specific requirements regarding your FD. If you do not have a regular income source, non-cumulative fixed deposit would be the best choice for you. Your non-cumulative fixed deposit will provide you with a steady source of income and you will receive regular payouts, whether monthly, quarterly, half-yearly or annually. What’s best is that you will be able to choose the payout frequency as per your preference. So, if you are a retiree, homemaker, freelancer or any individual who wishes to generate a consistent income from their own savings, choose non-cumulative fixed deposit without giving a second thought.

Why Should You Choose Life Insurance Over Non-Cumulative Fixed Deposit?

Non-cumulative fixed deposits can give you a regular income if you lack a steady source. However, you can also consider investing in life insurance.

Life insurance is a contract between the insurance company and the policyholder. Under life insurance, the insurer promises to provide a particular sum of money in the event of the unfortunate death of the life assured or once the policy matures.

Take a look at the below mentioned reasons why choosing life insurance over non-cumulative fixed deposit would be a beneficial move to make:

  • Life insurance will offer you the dual benefit of investment and insurance.
  • Not only for a few years, your life insurance will cover you for the lifetime.
  • Since life insurance is about risk coverage, you will be covered for various risks and your family members will receive utmost financial protection in case you are no longer there to provide.
  • Your life insurance will cover for more years than you pay the premium for.
  • Life insurance will give you the freedom to choose from its various types like retirement plan, term plan, ULIP and more to suit your needs the best.
  • Life insurance will grant you 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 Non Cumulative Fixed Deposit

  • Do non-cumulative fixed deposits feature interest accumulation?

    No! Non-cumulative fixed deposits do not come with the feature of interest accumulation like cumulative fixed deposits. 

  • Will I receive a regular payout of FD interest in case of non-cumulative fixed deposit?

    Yes! You will receive a regular payout of FD interest under your non-cumulative fixed deposit based on the payout frequency chosen by you.

  • What are the payout frequency options available under non-cumulative fixed deposits?

    The different payout frequency options available under non-cumulative fixed deposits are monthly, quarterly, half-yearly and annual.

  • How much interest can I expect to receive from my non-cumulative fixed deposit?

    You can expect interest according to the investment made. However, keep in mind that the higher the payout frequency will be, the lower the interest and payout will be. 

  • Will the interest earned on non-cumulative fixed deposits be taxable?

    Yes! The interest earned on non-cumulative fixed deposits will be taxable according to your income tax slab.

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