Non-cumulative FD

A non-cumulative fixed deposit pays its interest to you on a schedule instead of reinvesting it. You choose the payout frequency — monthly, quarterly, half-yearly or annually, depending on what the bank offers — and interest is credited to your account. At maturity, you get back the original principal.

Why it matters

It turns a deposit into a predictable stream of income, which is why non-cumulative FDs are popular with retirees and anyone who needs regular cash flow from savings. The payout amount is known in advance for the whole term.

How to read it

• Monthly payouts are slightly lower. Banks often pay a little less each month than a third of the quarterly payout, because they discount the rate for paying earlier. Check the actual figure.
• Lower final value than cumulative. Interest paid out does not compound inside the deposit. You can reinvest payouts yourself, but that is a separate decision.
• Reinvestment risk. At maturity, the principal must be re-deposited at whatever rates prevail then, which may be lower.

Common misconceptions

• “A monthly income FD is a pension.” Income lasts only for the deposit’s term; after that it depends on the rate available when you renew.
• “Payouts are post-tax.” Payouts are gross. Interest is taxable at your slab rate, and TDS may be deducted once interest crosses the threshold.

In India: Interest from non-cumulative FDs is generally taxed at your slab rate. Depositors whose total income is below the taxable limit can usually give the bank a self-declaration so tax isn’t deducted; check the current forms and conditions.