Monthly Income Guide
What is a monthly income account?
Monthly income accounts allow savers to put their capital in a bank or building society and use the regular interest payments to cover living expenses.
There are many different types of monthly income account – easy access, fixed-rate or notice accounts for example. But they all allow interest payments to be taken out, or diverted into another account, every month – even if access to the capital itself is limited.
The reason monthly income accounts have their own category is that some accounts only pay interest annually. In other cases, account providers may not allow interest to be taken out of the account on a regular basis, or may put limits on withdrawals.
What are the advantages?
Accounts that allow you to take interest out every month can in some cases pay better rates than other easy access accounts – in particular if you are willing to accept limits on withdrawals from the original capital you deposit in the account.
However there is no guarantee that such limits will give you a higher rate of interest, so ensure you shop around for the best rate and most suitable account when you are first looking for a home for your cash, and then on a regular basis after that.
What are the disadvantages?
If you are taking all the interest out of your account every month, then the capital you have deposited will gradually have its value eroded by inflation.
The higher the rate of inflation, the quicker this will happen.
Who do they suit?
Monthly income accounts are especially suitable for anyone who needs to live off the interest generated by their nest egg, or to use this money to supplement other income. This can be useful for retired people in particular.