Monthly income accounts allow savers to invest a certain amount of their money and then use any income gained from interest to cover living expenses and general outgoings. Although the invested capital may not be able to be withdrawn, the interest earned can be used or diverted to a separate account.
As with any type of savings deal, there are many options for investors to choose from but what makes this type different from most others is that many regular savings accounts will not pay interest on a monthly basis. Monthly income accounts not only pay a level of interest 12 times a year, they also allow instant access to the interest earned.
Like most forms of investment or savings account, there are many on offer and if you are considering applying for one, doing a little research can bring rewards in terms of decent rates of interest. Many banks and building societies offer easy access accounts, fixed rate interest or notice accounts, all of which have their own advantages and give savers the opportunity to withdraw interest on their savings reasonably easily.
An easy access account usually allows savers flexibility in the amount they choose to put away each month and the amount they wish to withdraw or re-direct to another account. An advantage of such an account is the freedom investors have in terms of what they want to save and the ease in which they can access their money, often at short notice. Interest rates for one of these accounts may be lower than others, however.
Fixed rate savings deals will ensure that account holders receive a guaranteed rate of interest on their money each month, usually regardless of fluctuations in the base rate of interest, which is governed by the Bank of England.
Notice accounts will often reward savers with the highest rate of interest available, though it is worth noting that you will often have to give a notice period to the bank or building society, should you wish to withdraw any of your savings.
Such accounts may offer savers a better rate of interest than others, but you need to decide what is more important for your needs – a higher interest rate on the money you have in the bank, or the ability to dip into your savings if and when you need.
Although monthly income accounts appear to have few disadvantages, they are not suitable for all savers. Living off the interest of your savings will only really benefit people who have a large nest egg to invest, possibly those who have retired with a large amount of put-away cash or people who have benefited from a large windfall. You should also remember that if you are withdrawing all of the interest from your savings each month, the value of your initial investment will diminish over time due to inflation.