Are you being short-changed by a savings account with monthly interest?

To make the most of your valuable savings, you need to shop around for an account with the best possible interest rate - but when you're paid and how often will also affect how quickly your money grows.

Most commonly, banks will either pay interest monthly or annually (either on a day of the bank's choosing or on the anniversary of when the account was opened). Getting a monthly income stream may seem appealing, but our analysis found a significant gap between the interest you can earn from each type of account.

Which? has looked into the best savings accounts that pay monthly and annually, along with the pros and cons of each type of account.

Should you opt for monthly interest?

Whether you're better off being paid monthly or annually will depend on what you want from your savings. But there's a significant gap between the best rates for monthly and annual accounts.

Monthly savings accounts are often favoured by those who want to use their savings interest as regular supplements to their income, although only certain instant-access or regular savings accounts will allow frequent withdrawals.

If the interest is regularly compounded - meaning it's added to your existing funds each month, rather than paid into a separate account - then you'll earn on an increasingly large savings pot, giving you even better returns.

However, after analysing the total number of instant-access, regular and fixed-term savings accounts currently on the market, we found that all monthly accounts had a lower average AER rate, and fewer products to choose from than accounts that pay annually.

For instant-access accounts, there are 100 fewer accounts that pay monthly, with an average AER of 0.01% less than accounts that pay annually.

Regular savings accounts are more disparate, with 30 options that pay annually and only five that pay monthly, with a difference of 0.32% between the average AER - again, accounts paid monthly are losing out.

It's the same story with fixed rate accounts. You'll have 56 fewer monthly accounts to choose from, and the average AER is 1.68%, compared with an average annual account AER of 1.82%.

The best monthly vs annual savings accounts

We've looked at the accounts for each term offering the highest AER rates for accounts that pay interest monthly and annually to see where you can grow your savings.

Monthly interest accounts

The table below shows the top-paying monthly interest savings accounts for each term.

_{Source: Which? Money Compare. Correct 12 October 2018.}

If you've decided you definitely want an account that pays monthly interest, the biggest returns can be found by locking your money away in a four or five-year bond.

You won't be able to make any additional deposits or withdrawals during this time, and the Ikano Bank account requires at least £1,000 to be saved - so you'll have to assess whether you'll be able to do without that money for the whole term.

It's worth noting that neither of these top-paying accounts beat the current rate of inflation, meaning your spending power will fall over time.

If you need access to your cash, Newcastle's Regular Saver could be a good option.

It pays a higher AER than the top-rate one and two-year fixed-rate bonds, but you'll need to make at least one deposit into the account in each calendar month, which can be anything between £1-£200.

You can make withdrawals whenever you like, but interest is only earned if you pay in more than you take out before the end of the month - so you'll need to bear that in mind.

For even more freedom, the Marcus by Goldman Sachs account - a recent launch that has shaken up the savings market - offers 1.5% AER for the first 12 months, which then drops down to 1.35% thereafter. There are no restrictions on withdrawals.

The Which? Money Compare comparison tables let you search hundreds of savings and Isa accounts to help find the best account for you.

Annual interest accounts

The table below shows the top-paying annual interest savings accounts for each term.

_{Source: Which? Money Compare. Correct 12 October 2018.}

As the table shows, there are a few surprising differences between the top-rate accounts that pay monthly and annually.

You can get an inflation-busting rate from First Direct's regular savings account - but it does require you to already hold a current account with the bank, and you have to pay in between £25-£300 every month. You have to set up a standing order for the payments.

The account is for a fixed 12-month term, and you can't make partial withdrawals. The only way to access your money before the 12 months is over is to close the account, and you'll only get paid interest at the banks standard savings account variable rate (this is currently 0.15% AER).

Elsewhere, in a surprising twist, the top annual interest five-year fixed-term bond actually pays less than the monthly option.

In fact, the Shawbrook Bank account pays less than the top three and four-year fixed rate accounts, and requires a much higher minimum initial deposit.

You can find higher interest rates if you opt for an annual-paying two and three-year account, but the one-year fixed-term account and instant-access options from Atom Bank and Tesco Bank are both beaten by the monthly options.

Ultimately, the best savings account for you depends how you want to save and spend your money - you can find out more in our guide on how to find the best savings account.

_{Please note that the information in the table(s) above is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of the savings account provider before committing to any financial products.}

_{Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.}