Recurring vs Lump-Sum Savings: What's the Difference?

Look for a way to build up savings and two options show up side by side: a recurring savings plan and a lump-sum deposit. The names sound alike and both mean leaving money with a bank, but how you add money and how interest accrues are different.

The short version: if you already have a lump sum, a deposit fits; if you are saving a little each month from here on, a recurring plan suits you.

A deposit: a lump sum, all at once

With a deposit you place a lump sum and leave it for an agreed term. The key point is that the whole amount earns interest from day one.

For example, $12,000 in a one-year deposit at 4% has all $12,000 earning interest for the full year, for about $480 before tax.

A recurring plan: a bit each month

A recurring plan adds a fixed amount every month, so your earliest contributions earn interest for a long time and your latest for only a short time.

Add $1,000 a month for a year and the principal reaches the same $12,000 — but the $1,000 you add in the final month earns only one month of interest. So at the same principal and rate, a recurring plan actually pays less interest than a deposit.

So which should you pick?

Here is the difference at a glance.

Recurring plans often advertise a higher rate, yet can still pay less interest — and this is why. The stated annual rate is on the same basis, but each installment is invested for a shorter time.

In practice, people often use a recurring plan to build a lump sum, then move that lump sum into a deposit so the whole amount earns interest. Either way, canceling before maturity can forfeit some of the promised interest, so choose a term you can realistically keep up.

Enter your monthly amount, rate, and term and you can see the maturity figure in advance. It is worth a look before you commit.

See your maturity amount in the savings calculator