Top instant-access savings rate pays monthly interest - but is it worth it?
Digital challenger Chip has upped the rate of its instant access account to 3.71% AER, taking it to the top of the Best Buy tables. But unlike many of its competitors, interest is paid monthly rather than annually.
The promise of being paid interest every month is tempting for people who want to earn a regular income from their savings. But with rates currently enjoying record highs across all types of savings products, do they actually offer the best return on your money?
Here, Which? explains how Chip works and how monthly interest accounts compare to annual interest deals.
What is Chip?
Chip is a digital savings and investment app, not a bank.
It works by pooling customers’ deposits and using that combined buying power to negotiate with savings providers to find top market rates.
So Chip's instant access account is actually provided by ClearBank.
ClearBank is a UK authorised bank and part of the Financial Services Compensation Scheme (FSCS) which protects deposits of up to £85,000.
- Find out more: are your savings safe?
How do monthly interest accounts work?
As the name suggests, monthly interest accounts pay interest every month, either into your nominated current account or added to existing funds in your savings account.
If you choose to have the interest paid into another account, perhaps to supplement your regular income, you won't benefit from compounding and will earn a slightly lower gross rate. On the Chip account that equates to 3.65%.
If interest is added to the existing account you will benefit from the effects of compounding so you’ll keep earning on top of each previous month’s interest, growing your savings quicker and earning the advertised 3.71% AER.
- Find out more: how to find the best savings account
Monthly vs annual interest savings accounts
Whatever type of account you plan to open, you should always shop around for the best rate. To help, we've compared the best accounts offering monthly and annual interest.
The following table shows the current top rates for instant-access, one-year and five-year accounts that offer monthly interest, ordered by term.
| Account type | Account | AER | Terms |
|---|---|---|---|
| Five-year fixed-term savings account | Aldermore 5 Year Fixed Rate Savings Account | 4.65% | £1,000 minimum deposit |
| One-year fixed-term savings account | StreamBank Fixed Rate Account | 4.9% | £1,000 minimum deposit |
| Instant-access savings account | Chip Instant Access | 3.71% | £1 minimum deposit |
Source: Moneyfacts. Correct as of 10 May 2023, but rates are subject to change.
So how do rates compare to annual interest accounts? This table shows you the top-paying annual interest savings accounts, ordered by term:
| Account type | Account | AER | Terms |
|---|---|---|---|
| Five-year fixed-term savings account | Isbank, Raisin UK - 5 Year Fixed Term Deposit | 4.95% | £1,000 minimum deposit |
| One-year fixed-term savings account | Close Brothers Savings 1 Year Fixed Rate Bond | 4.87% | £10,000 minimum deposit |
| Instant-access savings account | Shawbrook Bank Easy Access | 3.65% | £1 minimum deposit |
Source: Moneyfacts. Correct as of 10 May 2023, but rates are subject to change.
Fix for a better rate
Our analysis shows in the case of one-year fixes, you are actually slightly better off going for the StreamBank account that offers monthly interest and has a 4.9% AER.
If you deposited £1,000 with StreamBank's one-year fix at 4.9% AER and put the amount made in interest back into the account every month, then after a year you would have earned a total of £49.
Doing the same with the one-year Close Brothers Savings account paying 4.87% AER will earn you £48.70 in interest.
But watch out: if you decide not to have the interest put back into your savings pot and have it paid into a different nominated account, then the amount earned will be calculated according to the gross monthly interest rate, which is usually lower. For Aldermore’s five-year fixed-term, it’s 4.51%, with StreamBank its 4.79% and Chip's rate equates to 3.65%.
Go easy to feel instant benefits
Fixed-term accounts generally can't be touched for the agreed time period, so if you choose to have the interest paid back into your savings pot, you won’t be able to access it.
The solution would be to have it paid into another bank account, but that would likely mean losing out on interest earned through compounding. On the other hand, an instant or easy access account gives you the flexibility to dip into that income whenever you need.
It goes without saying of course that the amount of money you actually earn in interest will depend on how much you put in and withdraw each month. You won't see much of a return if you are regularly emptying your account, for instance.
The other thing to bear in mind when opening an instant access account is that the rate is variable and could go up or down depending on the market. So if, for example, the Bank of England's base rate does start to drop later this year as predicted, you may find your provider adjusts the savings rate downwards in response.
- Find out more: can switching accounts get you better interest rates?
