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.
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.
If you would like to receive a regular income from your savings then an account that pays monthly interest does exactly that. Most monthly interest savings accounts offer the option to either have your interest kept in the account (where it then benefits from compound interest and helps to grow your savings pot), or to have it paid into a separate account, such as your bank account where you can make use of it in your day-to-day finances.
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:
The best monthly interesting 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.
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.
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.
Normally the best rates are available on Fixed Rate Bonds but be aware that with these accounts you will not be able to gain access to your savings during the fixed period so only choose these accounts if you are happy to lock your money away for a while.
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. 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.
No both options have the same rules for savings tax.
Make sure you explore using your cash ISA allowance (deposit up to £20,000 in 2019/20). Savings in a cash ISA can earn tax-free interest, so it can really boost your monthly income if you pay tax on your savings interest. Basic rate taxpayers can earn up £1,000 tax-free interest on savings held outside of an ISA, but all ISA interest is tax-free.
If you think you will need to make withdrawals from your savings accounts makes sure you check what the account’s withdrawal terms are as some may not allow withdrawals or charge a penalty to do so.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.