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Whether you're a seasoned investor or new to the financial scene, understanding the concepts of Cumulative Vs Non Cumulative Interest rates in FDs is essential for making informed decisions.

As we all know, Fixed deposits, or FDs, are popular investment options offered by banks and financial institutions. It's a safe way to earn interest on your savings over a fixed period of time.

But when you decide to invest in FDs, there is always confusion while choosing between cumulative and non-cumulative interests. So let’s understand what they are.

What are cumulative interest rates?

When you opt for a cumulative FD, the interest you earn isn't paid out periodically. Instead, it's added to your principal amount and compounded at regular intervals, typically quarterly or annually.

As time goes on, the interest you earn starts to earn interest of its own, creating a snowball effect. This results in higher overall returns compared to non-cumulative FDs, especially over longer tenures.

On the other hand, we have non-cumulative interest rates. With this type of FD, the interest you earn is paid out at regular intervals, like monthly, quarterly, half-yearly, or annually. This can provide you with a steady income stream.

Non-cumulative FDs are suitable for those looking for a predictable income flow, such as retirees who rely on interest earnings for their living expenses.

Now, let's compare these two types of interest rates.

Cumulative FDs tend to offer higher overall returns due to the compounding effect. They're well-suited for individuals who can afford to keep their money invested for longer periods without needing regular interest income.

Non-cumulative FDs, on the other hand, are great for those who need a predictable income at regular intervals. It's important to note that the interest rates on non-cumulative FDs might be slightly lower than cumulative FDs because you're not benefiting from the compounding effect.

Before you decide between these two types of FDs, consider your financial goals and needs. Are you aiming for long-term growth or immediate income? Do you have other sources of income to cover your expenses? These factors will help you choose the right option.

And there you have it—a breakdown of cumulative and non-cumulative interest rates in Fixed Deposits.

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Time Stamps:

00:00 - Introduction
00:18 - What is a Fixed Deposit?
00:38 - What is Cumulative Interest Rate?
01:02 - What is Non-Cumulative Interest Rate?
01:25 - Comparison b/w Cumulative & Non-Cumulative Interest Rates
01:49 - Decision Part