Savings interest monthly vs annual

Pat38493

If I am opening a savings account and it's asking me whether I want interest to be paid monthly or annually, surely the obvious answer is monthly because I will then get interest on the interest more quickly?  

Am I missing something otherwise I'm not sure why they are even asking me the question?

Swipe

The interest will work out the same whether monthly or annually (they will both have separate rates to reflect this). The decision over monthly or annual really comes down to which tax year you would like your interest paid in.

BooJewels

If you're going to leave the interest in the same account, ultimately it doesn't make any difference to the amount you get over a year - you initially get a bit less interest each month as you go along, but it compounds over the year, coming to the same end result - hence it will show as 2 slightly different rates - such as 4.25% AER or 4.17% monthly - both will add 4.25% if untouched after a year. 
 
The two big advantages to monthly are that you can see it happening and it can feel more rewarding to watch your savings increase.  And depending on the type of account, you also get access to spend that interest each month - some pay into the same account and some can pay it out to a second account.  These latter options give you choice in what you do with it, rather than waiting a year.

jpsman

You're also not tempted to spend the interest if you have it paid annually, which for some might be important.

auser99

Swipe said:

The interest will work out the same whether monthly or annually (they will both have separate rates to reflect this). The decision over monthly or annual really comes down to which tax year you would like your interest paid in.

This is only the case if they pay to the account holding the money?
If you select monthly to a nominated account it's always slightly less isn't it?

Swipe

auser99 said:

Swipe said:

The interest will work out the same whether monthly or annually (they will both have separate rates to reflect this). The decision over monthly or annual really comes down to which tax year you would like your interest paid in.

This is only the case if they pay to the account holding the money?
If you select monthly to a nominated account it's always slightly less isn't it?

Yes, that's correct

london21

I prefer monthly.

allegro120

Pat38493 said:

If I am opening a savings account and it's asking me whether I want interest to be paid monthly or annually, surely the obvious answer is monthly because I will then get interest on the interest more quickly?  

Am I missing something otherwise I'm not sure why they are even asking me the question?

I always choose monthly because I can then quickly move the interest to a better paying account instead of waiting for a year to withdraw.

metrobus

allegro120 said:

Pat38493 said:

If I am opening a savings account and it's asking me whether I want interest to be paid monthly or annually, surely the obvious answer is monthly because I will then get interest on the interest more quickly?  

Am I missing something otherwise I'm not sure why they are even asking me the question?

I always choose monthly because I can then quickly move the interest to a better paying account instead of waiting for a year to withdraw.

I’m times of rising rates , but not if rates are falling, although I can not see the 2nd scenario happening anytime soon, but who knows.

david72

There is also the (small) risk that the bank may go bust, and although the FSCS would repay your money, would it pay you the interest that should have been due on an account that only paid annual interest, or would you lose that? (Genuine question: I don't know.)

Similarly, there will eventually come a year when you "permanently cease trading" and could not benefit from the final annual interest payment, but would have been able to spend monthly interest payments on 'blackjack and hookers', etc, before your demise…

Personally, I'd rather that my interest was in my grubby pocket as soon as possible, rather than the bank's!

BooJewels

david72 said:

[snip]
Similarly, there will eventually come a year when you "permanently cease trading" and could not benefit from the final annual interest payment, but would have been able to spend monthly interest payments on 'blackjack and hookers', etc, before your demise…

Personally, I'd rather that my interest was in my grubby pocket as soon as possible, rather than the bank's!

That opens up so many opportunities for reply, I don't know where to start.  But I'm with you, I always have monthly interest, as it's under my control then, to either spend or move to where it earns more (like a historic fix at 3.15% where I now move the interest to a regular saver at 7.5%, mitigating a bit of what I'm now losing out).  For me, a good month means I buy Lurpak instead of supermarket own branded butter.  But I now feel like I'm missing out, so maybe I need a rethink on how I spend my interest!