Monthly interest savings accounts

A monthly interest savings account is a type of account that pays interest on your balance each month. You can usually choose to have the interest paid into your nominated bank account to use as regular income, or leave it in the account to grow and benefit from compound interest. Interest is paid on a set day each month. This day is set by the provider and will likely be the day that the account was created.

The interest rate can either be variable (meaning it could go up or down) or fixed rate (where it will remain unchanged for an agreed term).

As the names suggest, a key difference between monthly and annual interest is how often it’s paid. Monthly interest is usually paid on the same date each month, whereas annual interest is paid in one lump sum after a full year. However, some providers only make payments on working days (Monday to Friday, excluding Bank Holidays), so the exact payment date may vary.

The interest earned on monthly and annual interest accounts can differ. Annual interest accounts can allow you to earn more because the interest stays in the account, letting you earn interest on your interest (compound interest). With a monthly interest account, you may be able to choose whether the interest is paid into the same account or into a separate bank account. If you leave it in the account, it will compound each month, meaning you can earn interest on the interest earned. If you pay it out, it can boost your monthly income, but it won’t earn additional interest in the savings account through compounding.

Compound interest is when you earn interest on both your original savings and the interest that has been added to your account. With a monthly interest savings account, interest is added each month, so your balance can grow steadily throughout the term. The benefit of monthly compounding depends on whether the interest is added to your savings or paid out to you. If interest is added to your balance, it earns more interest in the following months. If interest is withdrawn each month, you lose the compounding effect, and your total interest could be less than someone who leaves the interest in. The Annual Equivalent Rate (AER) at Shawbrook is the same whether interest is paid monthly or annually, because it assumes that interest remains in the account to compound and the rate doesn’t change. Withdrawing interest reduces the total interest you actually earn.

All of Shawbrook’s savings accounts are protected by the Financial Services Compensation Scheme (FSCS). The FSCS will protect funds across all of your Shawbrook accounts up to a maximum value of £85,000 for sole account holders or £170,000 for joint accounts.

Any amount you hold above these limits (including across multiple accounts) is unlikely to be eligible for FSCS protection, although there are some exceptions for temporary high balances. For further information, visit www.fscs.org.uk.

There is no difference between protection for monthly or annual accounts.