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Best Monthly Interest Accounts
 Make the most of your nest egg
If you want to make the most of your savings, and get a regular income from the interest you earn on them, then a monthly saving account is for you. Read on to find out exactly how they work, and which ones the Moneymagpies think are the best.
What are monthly interest accounts?Monthly interest accounts are savings accounts which, as the name suggests, pay interest monthly rather than annually or when the account matures. They act as a sort of 'quick fix' - if you want to start making some interest on your hard-earned cash as quickly as possible then this is the best way to do it. Obviously the more money you save in the account, the more interest you stand to earn each month. Most have a minimum of just £1 though, so even if you can only afford to put a bit away, you should be able to find an account to suit your needs. There are loads of different types of monthly interest accounts out there, so it's a question of choosing which kind is the best for you. Some are flexible and instant access, so you can withdraw money whenever you want. Others may penalise you for withdrawals, which might mean you lose a big chunk of interest so it's a good idea to check their terms and conditions carefully. Some are online accounts which means that while theoretically they are instant access, you won't have a mehtod by which to directly withdraw money and will need to allow a few days to transfer it to another account so you can withdraw it. Most are no notice accounts, but some can require notice which means you'll have to give the provider advanced warning before you withdraw money to avoid being penalised. Essentially, these accounts sacrifice the very best rates to give you flexibility to move your money around as you want and the added benefit of getting your hands on the interest quickly.
Who should get one?In order to get the full benefit from a monthly interest savings account you should aim to have a fairly decent sum of money your'e prepared to put away. Remember that these accounts offer variable rates of interest, so if it's stability you're after, and you know you won't touch your money, you should go for a fixed rate savings account. If you want to save regularly, and don't have a lump sum to put away at once, you'll be better off with a regular savings account. There are 2 main reasons to have a monthly interest savings account: 1 - To supplement your income An account that pays out monthly allows you to enjoy the income without taking a chunk out of your savings. Perfect if you want to supplement a pension and no longer need to rely on long-term high interest savings, or if you've got some savings you want to put to good use. 2 -To have a handy safety net If you have some savings, and are self-employed for instance, a monthly savings account could be a good safety net. You can earn interest on your interest which is always good, but know that if you do need some extra cash, the interest is there to use, and you haven't eaten into the savings themselves.
What to look out forInterest Rates OK, we're going to attempt a short explanation of AER and gross rates of interest in an effort to help you understand what to look for - hold tight! If you want to keep the monthly interest in your account, and therefore make interest on your interest over the year, you should look at the AER (Annual Equivalent Rate) because it takes this annual compounding into account. If however you plan to use your interest as an income and have it paid into another account each month, you should study the gross rate which just calculates the flat rate of interest paid. So, when you're looking at monthly accounts, the AER should be a little higher than the gross rate to reflect this difference. If that's all hugely confusing, just remember to always compare like for like. Sneaky Small Print Make sure you check if the rate of the account includes an introductory bonus. It's fine if it does, take advantage of it while you can but then move your money as soon as it is no longer applicable. You should also check the withdrawal limits and penalties. Some accounts will limit the amount of times in a year (or a set fixed period) that you can make a withdrawal before being penalised. Others will simply deduct all your monthly interest for making one withdrawal so check carefully to know exactly what you can and can't do, and choose an account appropriately.
Which ones are the best?Here are our current top picks:
With this account you can make unlimited withdrawals without losing any interest – perfect if you think you’ll need to dip into your savings from time to time. However, not being able to have your interest paid into the account means this is more suitable for those who are hoping to use their interest as an extra income.
Alliance and Leicester eSaver Issue 2
Be aware that if you make a withdrawal, you will lose all your interest for that month. So this account is best for those who want to take advantage of a great rate and can afford not to touch the money they put in.
This account also allows you to move your money around without any penalties. However, the interest rate includes a 1.67% bonus rate which lasts for 12 months, so make sure you move your money as soon as this ends.
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Joanna Robinson
Moneymagpie Moneypedia
18.11.2008
