Savings accounts are a great way to earn interest and financial peace of mind, but not all accounts are created equal, and it’s always worth comparing different types of savings accounts to find one that suits your needs. On this page, you’ll find out more about monthly interest accounts, how they work, what types of savings accounts pay monthly interest and how compounding can make a big difference to your savings.

Monthly interest savings accountsMonthly interest savings accountsMonthly interest savings accounts

What is a monthly interest savings account?

Monthly interest savings accounts are simply a type of savings account that pays interest monthly

You may have also heard of monthly income bonds, but although they sound similar to monthly interest savings accounts, they are different. Monthly income bonds are provided by National Savings & Investments (NS&I), which is backed by the Treasury. They pay interest monthly but don’t offer the benefit of compound interest.

 

How do monthly interest accounts work?

Monthly interest savings accounts pay interest monthly, either into a bank account you nominate or into your savings account through compounding (more on this below). 

What’s the difference between monthly interest and annual interest?

The difference between monthly and annual interest is that annual interest is paid annually, whereas monthly interest is paid monthly, making it a good option if you want a regular income stream. 

However, savings accounts that pay interest annually typically offer more competitive interest rates because of the effect of compounding. In simple terms, rather than being paid out monthly, annual interest can accumulate with the sum you’ve invested. 

 

What is compound interest, and how does it work?

Compound interest is the interest you earn from your original deposit combined with the interest you’ve earned so far. You might find that the best monthly interest accounts are also the ones which offer compound interest, as you’ll keep earning interest on each previous month’s interest. This could mean your savings grow quicker. 

What types of savings accounts pay monthly interest?

A number of different types of savings accounts have the option to pay interest monthly, although it’s important to check the details of each individual savings account to confirm this is the case before applying. The following savings accounts may pay monthly interest: 

  • Fixed rate bonds typically offer competitive interest rates if you have a lump sum to deposit that you won’t need to access for a set term, usually between six months and five years. Fixed rate bonds which offer monthly interest are amongst the best types of savings accounts to consider, because of their competitive interest rates and the effect of compound interest.
  • Fixed rate cash ISAs, or individual savings accounts, are similar to fixed rate bonds, but your savings are tax-free up to £20,000 per financial year (usually 6th April to 5th April). 
  • Easy access accounts are designed for flexibility and offer competitive variable rates of interest. They might be a good option for you if you want to earn interest every month and want the convenience of being able to top and withdraw from your savings whenever you want.
  • Notice accounts offer the flexibility of easy access accounts but usually feature more competitive interest rates.

Not all of these types of savings accounts will always pay interest monthly, so it’s always worth checking the account details.

 

How do I calculate monthly interest?

To calculate your potential monthly interest, simply divide the annual rate you see on the account by 12. This will show you the rate you’d get in each of the 12 months in a year. For example, let’s say the APR is 5%. If you divide 5% by 12, that means you’ll get 0.417% interest on your money each month.

Why save into a monthly interest account?

Monthly interest accounts allow you to earn interest more frequently than savings accounts which pay interest annually, so you could earn more from your savings. This type of savings account might be right for you if you want faster results from your savings and don’t want to wait for an annual interest payment. Some monthly interest accounts also offer compounding interest.

Who are monthly interest accounts right for?

Monthly interest accounts might suit you if you want a steady income stream each month. If you are motivated by seeing regular results from your savings rather than waiting a year with an annual interest savings account, a monthly interest saver is likely a better option for you.

What are the benefits of monthly interest accounts?

Monthly interest savings accounts provide a regular supplement to your income, which is good if you’re looking for an account that tops you up each month. 

The variety of different accounts available allow you to choose a savings account that works best for you and your lifestyle, with features such as instant or restricted access and the option to deposit more money when you want to. 

As we mentioned above, monthly interest accounts also mean that you won’t have to wait a full 12 months to see a return on your savings, which getting visible results quickly can help you save.

What is compound interest, and how does it work?

Compound interest is the interest you earn from your original deposit combined with the interest you’ve earned so far. You might find that the best monthly interest accounts are also the ones which offer compound interest, as you’ll keep earning interest on each previous month’s interest. This could mean your savings grow quicker.

Is my money protected in a monthly interest savings account?

If you open a monthly interest savings account with a UK-regulated bank, the Financial Services Compensation Scheme (FSCS) protects your deposit, up to £85,000 per person, per banking group. The FSCS protects deposits in the event a financial institution is dissolved or fails. At Raisin UK, we want to protect your savings, so we only allow you to make deposits of up to £85,000 per person, per banking group.

What’s the best monthly interest savings account?

The best monthly interest savings account is likely to differ from person to person, depending on your financial situation, how much you have to invest and what your savings goals are. You can find the best monthly interest savings account for you and maximise the return on your money by completing a small amount of your own research and comparing different monthly savings accounts.

How do I compare monthly interest savings accounts?

You can compare monthly interest savings accounts online by using savings comparison tables, or by visiting your bank’s local branch and seeing what they have on offer. However, by comparing savings accounts online, you’ll have a larger choice of accounts and providers.

How do I find the best monthly interest savings account for me?

You can find the best monthly interest savings account for you by going online and using savings account comparison tables to find one that’s the best fit for you. It’s important that you look into the terms and conditions of each different account to ensure it will suit your needs.

How do I get the best interest rate on monthly interest savings?

To get the best interest rate on a monthly interest savings account, you could consider opting for an account with a larger amount of restrictions, such as fixed rate bonds which lock your money away over a set period of time, because these types of savings accounts will often offer higher rates of interest. 

Before you commit to this type of account, however, you should ensure that the restrictions in place on the account suit your savings goals

What to consider when comparing monthly interest savings accounts

There are a few important questions you should ask yourself before you commit to opening a savings account:

  • Does this savings account work for me? 
  • Does the account have a minimum/maximum opening deposit requirement? 
  • Are there any restrictions on accessing/withdrawing/depositing money? 
  • Will this account help me meet my savings goals

Compare monthly interest savings accounts
at Raisin UK

If you want to quickly and easily compare and open monthly interest savings accounts, register for a Raisin UK Account and apply today. Opening an account with Raisin UK is free and you’ll find competitive interest rates from a range of UK banks.  

If you have any questions, our UK-based Customer Services Team is happy to help.

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