Cumulative FD
A Fixed Deposit where interest compounds over the tenure and the entire amount (principal + interest) is paid at maturity.
In a cumulative FD, interest earned each quarter is added back to the principal rather than being paid out. The next quarter's interest is then calculated on this increased amount, creating a compounding effect. For example, ₹1,00,000 at 7% for 3 years with quarterly compounding grows to ₹1,23,144 — earning ₹23,144 in total interest. Had the interest been paid out (non-cumulative), total interest would be only ₹21,000 via simple interest payouts. Cumulative FDs are ideal for investors who don't need regular income and want to maximize returns. Most banks default to the cumulative option. The compounding frequency is typically quarterly for Indian banks, though some calculate on a monthly or half-yearly basis.