The benefit of making a cumulative fixed deposit is that it will earn a higher return for the investor.
Consider an example of Rs 1 lakh invested in a fixed deposit at 8 per cent in two cases for 3 years. The first involves the interest to be paid out and the other for the interest to accumulate.
In case of the payout the interest earned over the 3 year period is Rs 24,000.
For the cumulative interest deposit the interest earned at the end of the 3 years is Rs 25,971.
By not taking out the interest the investor has more in hand at the end of the 3 years.