Cumulative vs. non-cumulative FDs, compared

Two fixed deposits can quote the exact same rate, on the exact same principal, for the exact same tenure, and still mature to noticeably different totals. The difference has nothing to do with the rate. It comes down to what happens to the interest each period: whether it’s reinvested, or paid out.

Two ways to receive the same quoted rate

A cumulative FD reinvests every period’s interest back into the principal, so each subsequent period earns interest on a slightly larger balance: the same mechanics as compound interest, with nothing paid out until maturity. A non-cumulative FD pays the interest out as income each period instead (monthly, quarterly, or annually), which means the principal itself never grows. Every period earns interest on the same original amount, which is really just simple interest wearing an FD’s label.

The same ₹5,00,000, two different totals

Depositing ₹5,00,000 at 7% p.a. for 5 years, compounded quarterly, shows exactly how much that reinvestment is worth.

The gap, ₹32,389, comes entirely from what happens to the interest after it’s earned, not from any difference in the quoted rate, the principal, or the tenure. It’s the cost of taking the interest as income instead of letting it keep compounding.

Which one actually suits your situation

If the goal is growing a lump sum untouched toward a future target, cumulative wins outright at the same quoted rate — there’s no scenario where taking the interest out early and not needing it still comes out ahead. Non-cumulative isn’t a worse product, though; it exists for a genuinely different purpose, regular income, most commonly for retirees who need predictable periodic cash flow rather than a larger number at the end.

Choosing non-cumulative without actually needing that periodic payout is where the ₹32,389 gap becomes a real, avoidable cost — money quietly left on the table for a feature that was never being used in the first place.