Q: Should I choose an account that pays monthly interest?
When looking at the types of savings accounts available to you, the first thing to ask yourself is - what am I going to use the money for?
Accounts that offer the option to take interest on a monthly basis are ideal for those looking to use that interest to supplement their income. This means that you can make the most of a lump sum, without having to dip into your savings.
However, if you aren’t looking for regular income from your savings, the monthly interest option is far less important and you might, in fact, find that you restrict your choice of accounts and miss out on the best rates.
The monthly gross rate is usually lower than the annual equivalent rate (AER), as the latter is based on the interest being added to the account monthly and compounding. On accounts that offer both monthly and annual options, as the AER is the same for both, it means that you aren’t effectively getting more interest if you opt for monthly interest.
Not all accounts offer the option to take interest on a monthly basis, it is down to the individual provider and the terms and conditions of the account. So, if you are looking for monthly interest, as mentioned above, you may find that there is less choice and may even find the information less easy to come by.
However, there are times where the market-leading account also offers monthly interest. You may have spotted a new account from Masthaven Bank, launched this week, which pays 2.29% monthly gross/2.32% AER* and sits at the top of the three year fixed rate bond table.
Atom Bank leads the way for both one year (2.03% monthly gross/2.05% AER) and two years (2.13% monthly gross/2.15% AER). If you are looking for a longer term, Vanquis Bank pays 2.63% monthly gross/2.66% AER for five years* - although these accounts are not necessarily the top rates available for savers who don’t require a monthly income.
A great place to keep an eye on the top-paying accounts that offer monthly interest is our monthly income best buy table.
In fact, as monthly interest can be offered on any type of account, a quick run through of each account that features in our best buy tables can prove a useful exercise when looking at your options. A summary of each account can be found in the ‘account summary’ section of the table and this will indicate if interest can be paid monthly on the account.
There are plenty of competitive accounts that will pay you a regular amount to boost your income - but if you are looking at accounts for other savings goals, it may be a good idea to not restrict your choice of accounts. And if you take interest out of the account when you don’t need it, you’ll miss out on valuable compounded interest.
If you need any further help with finding the accounts that are most suitable for your needs, please call us on 0800 011 9705 to speak to one of our expert savings specialists.
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