Installment Savings

An instalment savings plan takes a fixed amount every month for a set term and returns the principal with interest at maturity. Where a time deposit parks a lump sum, this one builds the lump sum.

The catch is that you do not earn the headline rate on everything. The first month's payment earns a full year of interest; the final month's earns one month. A 4% plan therefore delivers roughly half that in practice.

Miss that and you will compare deposit and instalment rates as if they were the same. At an identical 4%, a deposit is far better when you already have the money. The real value of instalment saving is the habit it enforces.

Breaking the plan early replaces the agreed rate with a much lower early-termination rate. Starting with an amount you are certain to sustain beats an ambitious figure you abandon halfway. If you already hold the lump sum, a deposit pays more interest than feeding it into an instalment plan month by month. Instalment saving is designed for people who are still building that sum.