Monthly Income

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Monthly Income

These can be based on several types of deposit: for example, instant access or notice account, term account or bond. Most commonly they are notice accounts. Instead of accumulating interest within the account or bond, the interest is paid out monthly as income. This form of investment is popular with pensioners seeking to boost their income.

Generally, these are notice accounts where you can have your money back at any time provided you give the required notice, say, 60 - 90 days, or alternatively pay an interest penalty.

Capital is not at risk but is vulnerable to inflation. Variable rates are vulnerable to falling interest rates, but you would lose out if locked into fixed rates when other interest rates were rising.

Risk rating: one to three, depending on type of account or bond.

Notice accounts
These are savings accounts that enable you withdraw your money without penalty only if you give a specified period of notice, such as, a month or 90 days, depending on the account. Earlier withdrawal is usually (but not always) possible on payment of an interest penalty.

Interest is taxable and usually paid with tax at the savings rate (20 per cent in 2000-1) already deducted. Non­taxpayers can reclaim tax overpaid, or, better still, arrange for interest to be paid gross by completing Form R85 from the bank, building society or your local tax office. Starting-rate taxpayers can reclaim part of the tax. No further tax for basic-rate taxpayers, but higher-rate taxpayers pay extra.

Capital is not at risk but is vulnerable to inflation. Vulnerable to falling interest rates, especially since you cannot readily switch to another investment.

Risk rating: two to three, depending on length of notice period.

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