Monday, 7 July 2014

What is difference between Cumulative Deposits and Fixed Deposits?

Everyone wants to save something for the rainy day and invests in different instruments to create wealth. Cumulative deposits and fixed deposits are two very dependable as well as attractive modes of investment to ensure accumulated funds at one’s disposal after a certain period.

Both of these deposits differ in many aspects. Both of them provide you interest at prevailing rates but in fixed deposits (FDs), you may receive interest payable at specified frequency. So, FDs are ideally suited for you if require periodical interest payment. But in cumulative deposits, interest is payable only at the time of maturity along with the principal amount. Depending upon the bank, interest is calculated quarterly or half yearly and added to your principal amount.

In cumulative deposits, you have to invest a specified amount every month into your account and the total amount with interest is paid at the end of the specified period. You get the benefit of receiving both interest and maturity amount at the end of the term. So, if you do not require periodical interest payment, and don’t need the money before maturity period, you may go for cumulative deposits.  In other words, cumulative deposit scheme is more profitable if you are looking to multiply your money.

Cumulative deposits are also refereed as term deposits (recurring deposits) since herein you deposit specified amount every month and get interest +maturity amount at end of the term. You may opt for cumulative deposits when you want to regularly (monthly, quarterly, etc) deposit a fixed amount.
In a fixed deposit, you deposit a given amount for a predetermined period at one go. For your information, apart from banks, a number of companies also accept fixed deposits, sometimes termed as debentures. In such fixed deposits, you may avail the option to get all or part of your investment converted into the companies' shares on maturity.

Cumulative deposit is equivalent to recurring deposit where you have the flexibility of saving whatever amount you wish at any time, and the rate of interest payable to you will remain unaffected. Under such bank account, you are required to deposit in the multiples of Rs 5 or Rs 10.  The tenure of this deposit may vary from 1 to 5 years with the rate of interest depending on the particular period. Recurring or cumulative deposit is better than savings bank account as you get higher rate of interest in the former, in fact it is as beneficial as a fixed deposit account. Many banks offer such deposit accounts to promote the habit of saving among people. ICICI Bank offers one such product called iWish to investors looking for flexible investment amount every month.

So, now you know the comparative benefits of both cumulative deposits and fixed deposits. You can decide to go for either of them as per your need. You may do well to approach some branch of the bank near your place of residence to know the options of both cumulative deposits and fixed deposits and their respective terms and conditions.

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