Differences Between Cumulative Interest and Quarterly Interest Payouts
Written by Pradnya Surana
2 min read | Updated on November 24, 2025, 17:12 IST
Choosing Between Cumulative or Non-Cumulative FD
When opening a Fixed Deposit, banks ask whether you want cumulative or non-cumulative (periodic) interest. By this, banks are simply asking if you want the interest to be paid regularly into your account, or, you want total interest to be paid at the end of the tenure.
Understanding their difference is important because it makes a significant difference in total returns.
What is Cumulative Interest?
In a cumulative FD, interest is compounded and paid along with the principal at maturity. During the entire deposit period, you don't receive any interest. The interest keeps getting added to your principal and you earn interest on interest.
Example - You deposit ₹1,00,000 for 5 years at 7% per annum. With cumulative interest, you receive approximately ₹1,40,255 at maturity. You don't get any payments during the 5 years.
What is Quarterly Interest Payout (Non-Cumulative)?
Non-cumulative FDs pay interest at regular intervals, monthly, quarterly, half-yearly or annually depending on what you choose. Most people choose quarterly payouts. The principal remains constant and only simple interest is calculated and paid periodically. Your deposit amount remains constant and there is no compounding of interest.
Example - Same ₹1,00,000 at 7% for 5 years with quarterly payouts gives you ₹1,750 every quarter (₹7,000 annually). At maturity, you receive your ₹1,00,000 principal back. Total interest earned is ₹35,000.
Differences Between Cumulative and Non-Cumulative FD
Total Returns
Cumulative FDs offer higher returns because of compounding. In our example, cumulative gave ₹40,255 interest while quarterly gave only ₹35,000.
Cash Flow
Quarterly payouts provide regular income. They are ideal for those needing steady cash flow. Cumulative suits those who can wait for a lump sum, typically goal based saving.
Compounding Effect
Cumulative FDs benefit from compounding. They earn interest on interest. Quarterly payouts don't compound as the interest is withdrawn.
Who Should Choose Cumulative FDs?
Long-term Savers
If you are saving for a goal 3-5 years away and don't need any income in between, cumulative maximises returns
Young Professionals
Those with regular income who don't need additional monthly cash flow benefit from higher compounded returns.
Goal-Based Saving
Saving for your child's education, home down payment or retirement? Cumulative grows your corpus faster.
Tax Planning
If you are in a high tax bracket currently but expect lower income in future years, cumulative FDs defer tax liability to maturity.
Who Should Choose Quarterly Payouts?
Retirees
Senior citizens often need regular income for their monthly expenses. Quarterly interest provides predictable cash flow without touching the principal.
Supplemental Income Seekers
Those wanting to supplement their salary with additional regular income.
Emergency Preparedness
Regular payouts ensure you have some cash flow without breaking the FD.
Lower Tax Bracket
If you are in a lower tax bracket, quarterly interest doesn’t impact your taxes significantly and you gain liquidity.
Tax Implications
Both types are taxed in similar ways. Interest income is taxable as per your income slab. For cumulative FDs, tax applies annually (even though you receive money at maturity).
Banks deduct TDS if your annual interest exceeds ₹40,000 (₹50,000 for senior citizens) for both types.
Hybrid Approach
You can split deposits. Some cumulative for wealth building and some quarterly for regular income. This balances growth with liquidity. Understanding these differences ensures your FD choice aligns with your financial needs and maximises returns based on your situation.
About Author
Pradnya Surana
Sub-Editor
is an engineering and management graduate with 12 years of experience in India’s leading banks. With a natural flair for writing and a passion for all things finance, she reinvented herself as a financial writer. Her work reflects her ability to view the industry from both sides of the table, the financial service provider and the consumer. Experience in fast paced consumer facing roles adds depth, clarity and relevance to her writing.
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Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.