Although there are many types of FDs, they are mainly of two types. They are cumulative fixed deposits and non-cumulative fixed deposits. They are classified based on the mode of interest payment. If you want to receive interest gradually, you have to choose one deposit.
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Cumulative Fixed Deposit
In case the Cumulative Fixed Deposit option is chosen, interest is paid on the invested amount only after the expiry of the maturity period. Interest is paid to the depositor along with the principal amount. Interest is compounded on these cumulative fixed deposits. That means interest must be realized. Interest is calculated once every three months and added to the principal. In this way, the principal amount increases once every three months. However, interest cannot be charged in between. You should know this while joining it.
Non Cumulative Fixed Deposit
Non-cumulative FD is best for those who want to get regular income on their fixed deposit. The invested money remains the same till the time of maturity. Interest can be taken on it. There is the flexibility of taking interest monthly, three, six and yearly. On the other hand.. this type of FD carries only simple interest. No compound interest.
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On the other hand.. Interest rates are finalized at the time of opening of fixed deposits. Whatever interest there is at that time.. the same rate of interest will be applicable till maturity. If the interest rates on FDs are reduced or increased in the middle, it will not affect the first opened.
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