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Non Cumulative Fixed Deposit

A Non-Cumulative Fixed Deposit is a specific type of fixed deposit where the interest is paid out regularly, either on a monthly, quarterly, half-yearly, or annual basis. Unlike cumulative fixed deposits where the interest gets added to the principal and is paid at maturity, Non Cumulative FD provides periodic interest payouts to the depositors during the chosen frequency.

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It is a form of investment which gives you guaranteed returns mentioned while investing along with life coverage.

  • You Invest

    1 Lakh p.a.
    10 years
  • You GET Tax Free

    27.3 Lakh
    20 years
  • You Invest

    1 Lakh p.a.
    10 years
  • You GET Tax Free

    27.1 Lakh
    20 years

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. 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 Non Cumulative fixed deposit interest rate is paid out at regular intervals, the investor gets a periodic income throughout the tenure of the fixed deposit. And, 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 FD is that it comes with a low interest rate as the power of compounding is not realised properly. Moreover, the maturity amount decreases if the payout frequency is high.

All this makes Non-cumulative fixed deposits 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 key features of Non Cumulative fixed deposit are as follows:

  • No Interest Collection: Under a non-cumulative fixed deposit, the interest is not accumulated or collected.

  • No Facility for Interest Compounding or Reinvestment: Unlike cumulative fixed deposits, non-cumulative fixed deposits do 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 in comparison 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 Work?

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 based on the payout frequency chosen at the time of applying for the non-cumulative fixed deposit.

NOTE: The investor cannot reinvest the interest earned because the Non-cumulative FDs 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 same:

  • 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 an 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.

Moreover, make sure you keep the below-listed points 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, the non-cumulative fixed deposit would be the best choice for you as it will provide you with a steady source of income and you will receive regular payouts. Furthermore, 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 your savings, choose a non-cumulative fixed deposit without giving it a second thought.

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

As discussed above, 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.

If you are still in a dilemma, then please have a look at the reasons listed below that highlight why choosing life insurance over a non-cumulative fixed deposit would be a beneficial move to make!

  • Life insurance provides a dual benefit of both investment and insurance

  • It doesn't just offer coverage for a limited period; instead, it ensures protection for your entire life

  • Given its nature of risk coverage, life insurance safeguards you against various uncertainties, ensuring your family receives comprehensive financial protection if you're no longer present

  • The coverage extends beyond the years for which premiums are paid

  • With different types such as retirement plans, term plans, ULIPs, and more, life insurance provides the flexibility to choose according to your specific needs

  • It comes 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 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.

  • Why is life insurance a worthwhile choice to make?

    One of the key reasons life insurance is advised is because it gives one with the dual benefit of investment and insurance. Moreover it inculcates the habit of saving. Tax benefits and financial protection of loved ones are yet another benefits of life insurance that make it a worthwhile choice to make.

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