Non-tax, annual or monthly interest?

periwinkle_2

Hi

I'm looking for a savings account, and I'm a non-tax payer. Is there any advantage to choosing annual rather than monthly interest payment?

psychic_teabag

Usually monthly and annual end up with the same AER (once the monthly interest is compounded) but occasionally they have different AERs so it's worth checking the specific T&C.

A benefit of monthly is that if the rate drops, you may notice more quickly because the size of the payments drop.

One other benefit of monthly is that if you become a taxpayer in the future, interest you receive in the previous financial year will be tax free, but if you get annual interest, a whole year's worth of interest becomes taxable if it's paid in the same year as you become a taxpayer. (By the same token, a taxpayer might choose monthly if they might become a higher-rate taxpayer soon, or might choose annual if their job is at risk.)

periwinkle_2

Some very useful points, PT. Thank you.