A cumulative fixed deposit is a type of bank or NBFC deposit where the interest earned is not paid out periodically but is instead compounded and reinvested at the same rate throughout the deposit tenure. The total interest accumulated over the period — along with the principal — is paid as a lump sum at the time of maturity. This compounding effect means the maturity amount is significantly higher than non-cumulative FDs of the same tenure, making cumulative FDs particularly attractive for investors who do not need regular income from their deposits and are willing to wait until maturity to receive returns. In India, cumulative FDs are offered by commercial banks, small finance banks, and deposit-taking NBFCs. They are particularly suitable for long-term financial goals such as building a corpus for a child's education or retirement. The interest earned on cumulative FDs is taxable as income from other sources in the year it is received or accrued — whichever is earlier as per the investor's accounting method.
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