Best Monthly Interest Savings Account

How does a monthly interest savings account work?

A monthly interest savings account works like any standard savings account, except it pays interest on a monthly basis. Other savings accounts may pay interest quarterly, yearly, on anniversary or on maturity of a fixed term, for example.

Some providers allow you to choose how you have interest paid while others will only pay interest in one way.

With a monthly interest account, the provider pays the interest due on a specified day each month. They may pay it back into your savings account (which means you can earn interest on top of the interest you’ve earned, known as compounding) or you may be able to have it paid into an account of your choice.

What savings accounts pay monthly interest?

A range of savings accounts can pay interest monthly, including easy access accounts, notice accounts and fixed bonds.

However, not all providers give you the option of having interest paid monthly.

You can view the savings accounts that can pay interest monthly on the chart above.

It’s worth noting that Individual Savings Accounts (ISAs) can also pay interest monthly.

Monthly vs annual interest

The only difference between monthly and annual interest savings accounts is that the former pays interest each month while the latter pays it each year.

Neither option is necessarily better than the other. The way you choose to have interest paid is up to you and your individual requirements.

If you want the interest paid back into your savings account, it shouldn’t make much difference whether the provider pays interest monthly or annually as both options will pay interest on top of the interest you’ve already earned. This is known as compounding interest.

However, if you have interest paid into a nominated account each month, such as your current account, you won’t earn interest on this sum. As a result, you would earn less interest than if the savings provider paid interest yearly.

When looking at monthly interest savings accounts, you may notice that the gross rate is slightly lower than the annual equivalent rate (AER). This is because the AER assumes that interest is compounded (paid back into the savings account), whereas the gross interest rate does not.

The AER helps you to compare accounts that pay interest in different ways on a like-for-like basis.