What is Cumulative Deposit? Best Cumulative Deposit Rates in India

A cumulative deposit, or cumulative FD, is a type of fixed deposit where interest is compounded quarterly or annually and paid out at maturity with the principal, resulting in higher returns due to reinvestment of interest. Popular in India, cumulative deposits serve as a savings tool, allowing investors to accumulate substantial amounts over time by benefiting from the compounding effect, unlike non-cumulative deposits where interest is paid periodically.

How Cumulative Deposits Work

In a cumulative fixed deposit, the interest earned is not paid out regularly but is added to the principal amount. This process is known as compounding. The compounding effect can significantly increase the final amount received at maturity. Here's how it works:

Initial Investment

The investor deposits a principal amount for a fixed tenor.

Interest Compounding

The interest is calculated on the principal and added to it at regular intervals (quarterly or annually).

Maturity Amount

At the end of the tenor, the total amount, including the compounded interest, is paid out.

Benefits of Cumulative Deposits

Higher Returns

Due to the compounding effect, the returns on cumulative deposits are higher compared to non-cumulative deposits.

Convenient

Since interest is paid out at maturity, there is no need to manage periodic interest payments.

Low Risk

Cumulative deposits issued by banks and NBFCs are considered low-risk investments.

Cumulative Deposit Rates in India

Here are some of the cumulative FD rates offered by various banks and NBFCs in India:

Issuer

Interest Rate (% p.a.)

Tenor

State Bank of India

4.00% to 7.50%

7 days to 10 years 

HDFC Bank 

3.50% to 7.85%

7 days to 10 years

ICICI Bank

3.50% to 7.75%

7 days to 10 years

Bajaj Finance

7.65% to 8.35% 

12 months to 60 months 

Shriram Finance Limited

7.59% to 8.47%

12 months to 60 months

PNB Housing Finance Limited

7.45% to 7.75%

12 months to 120 months

How to Calculate FD Rates

Calculating the maturity amount of a cumulative FD can seem complex, but there are many online tools available that make this process simple and accurate. These tools are known as FD calculators.

Using an FD Calculator

An FD calculator is a digital tool that helps you estimate the maturity amount of your fixed deposit based on the principal amount, interest rate, and tenor. Here's how to use one:

  • Enter the initial amount you plan to invest.

  • Provide the annual interest rate offered by the bank or NBFC.

  • Choose the period for which you want to keep the deposit.

  • Select how often the interest is compounded (quarterly, half-yearly, or annually).

The calculator will then compute the maturity amount and the total interest earned.

Benefits of Using FD Calculators

FD calculators ensure precise calculations, save time, allow easy comparison of FDs, and aid in better financial planning. Here are some benefits of using FD calculators:

Accuracy

FD calculators ensure precise calculations. This eliminates the risk of manual errors.

Time-Saving

FD calculators provide instant results. This saves you time and effort.

Comparison

You can easily compare the maturity amounts of different FDs. This is done by adjusting the inputs.

Financial Planning

These tools help in better financial planning. They give a clear picture of the returns on your investment.

Factors to Consider

Interest Rate

The interest rate offered by banks and NBFCs varies. Compare rates to find the most favourable.

Tenor

Choose a tenor that aligns with your financial goals. Longer tenors may yield higher returns due to compounding.

Issuer's Credibility

Ensure the issuer, whether a bank or an NBFC, is credible. Check if they have a good track record.

Conclusion

Cumulative deposits are an excellent savings tool for those looking to maximise their returns through the power of compounding. By choosing the right tenor and comparing interest rates offered by various banks and NBFCs, investors can significantly enhance their savings. Always consider the credibility of the issuer to ensure your investment remains low-risk and secure.

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