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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.
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:
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.
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.
No both options have the same rules for savings tax.
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.
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