Plan
Tax starts at 0 because the rate differs by country. Enter yours to see the net amount.
Why 4% pays about half of what you expect
The first payment sits in the account for the whole term and earns a full year of interest. The last one arrives a month before maturity and earns one month. Averaged out, your money is only there for about half the term — which is why a recurring deposit at the same rate pays roughly half what a lump sum would.
How it is worked out
Each instalment earns interest for the number of months still left, and the results are added together. That is the simple-interest convention nearly every bank uses for this kind of product. Nothing here is capitalised, so the interest never earns interest of its own.
Compare against a lump sum properly
Putting the same total into a fixed deposit on day one earns much more, but of course it requires having the money on day one. The honest comparison is between what you can actually commit each month and the lump sum you actually have.
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Frequently asked questions
Q. Is the advertised rate misleading, then?
No, the rate is applied correctly — to each instalment for the time it is held. What misleads is the instinct to multiply the total paid in by the rate, which assumes all the money was there from the start.
Q. What if I miss a month?
Most banks either reduce the rate or push the maturity date back. The calculation here assumes every instalment arrives on time, so a missed month makes the real payout lower than this.
Q. Does it compound?
No. This follows the usual simple-interest convention for recurring deposits. Products that compound monthly do exist and pay slightly more; check the terms for the word.