Best rates - monthly interest accounts

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Monthly Interest Accounts Guide

At a glance

  • A monthly interest savings account pays you interest on a monthly basis, which can be paid into another account or added to the savings within the account depending on the terms of the account.
  • There are a number of savings accounts that pay monthly interest, these include easy access accounts, cash ISAs, fixed rate ISAs, notice accounts, fixed rate bonds, Help to Buy ISAs and offshore savings.
  • Normally the best rates are on fixed rate bonds, but these usually don’t allow you to withdraw your money before the end of the fixed period.

Lots of different types of savings accounts pay interest monthly; including Fixed Rate Bonds, Easy Access, Notice and Cash ISAs. As well as this, other accounts may also pay monthly interest so it is important to check in the account details to see when interest will be paid. Monthly interest savings allow you to earn interest on your savings that can then be paid either to you as an income or added to your savings balance. Taking interest as an income is particularly appealing to those with large savings in a fixed-rate account, as it would provide them monthly payments from the account without incurring a penalty that they may otherwise get for withdrawing money.

How do monthly interest savings accounts work?

Earning monthly interest on your savings means exactly that. Each month the interest is calculated on your balance and then the interest is paid either directly to you or added to the balance. You will find a range of account types that offer monthly interest and a choice of fixed and variable rates. If you want to save tax-free then you may want to open or transfer to a cash ISA paying monthly interest.

Which savings accounts pay monthly interest?

Not all savings accounts and cash ISAs offer the option to pay you monthly interest so it is important that you check the account’s information to ensure that the one you choose allows this. You can earn monthly interest on:

  • Easy access accounts
  • Cash ISAs
  • Fixed-rate ISAs
  • Notice accounts
  • Fixed rate bonds
  • Help to Buy ISAs (these are for first time buyers only)
  • Offshore savings

What should I check before opening an account paying monthly interest?

Before opening the account make sure you are happy with the terms of the account and the ways you will be able to manage the account. As well as this, some monthly interest accounts may only allow the interest to be paid to a separate account so watch out for this.

Can I have my interest paid into a different account?

Some accounts will let you choose to pay your interest into an account held at a different bank or Building Society, you will need to check the account details to ensure that the account you are considering allows this.

What are the differences between monthly interest and annual interest savings options?

Sometimes interest rates for the monthly interest option may differ to that of annual option and, again, always make sure you check the account details to see if there is a difference and what this will be. Where the interest is compounded, you will probably find that the Annual Equivalent Rate (AER) is the same as an annual interest version of the same account, as the actual amount of interest earned is the same over the year.

Also keep in mind that monthly interest allows you to earn your interest more frequently than annual interest options, but this will result in not getting the lump sum of interest that you would on annual accounts.

Will savings tax be different between monthly and annual interest options?

No both options have the same rules for savings tax.

Where are the best monthly interest savings accounts?

The best monthly interest savings accounts are constantly changing as saving providers bring out new products and change rates. As well as this the best account for you will depend on your personal circumstances and not just on the best rate available, for example some accounts will require a high minimum deposit while others might not allow further deposits made to the account once it has been opened.

Pros and cons of monthly interest accounts

  • Monthly interest can be moved into another account which can provide you with access to some money from a fixed-rate savings account
  • A wide range of savings providers offer monthly interest accounts making it easier for savers to find a competitive rate
  • The interest gained monthly might be lower than that gained annually on the same account
Best Monthly Interest Accounts

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