Monthly Cash Flow: Exploring Regular Investment Payouts

Monthly expenses such as utility bills, mortgages, and auto loans usually require immediate cash flow, yet many investments only generate income quarterly, annually, or even less frequently. However, there are a number of assets that pay income on a monthly basis, including savings accounts, certificates of deposit, annuities, bonds, dividend stocks, and rental real estate.

Monthly income-paying investments do exist and can offer a variety of characteristics to suit different needs for safety, security, and yield.

Savings accounts

When choosing a monthly interest savings account, it's important to compare the interest rates offered by different banks and consider any account fees and minimum balance requirements. Some accounts may also offer additional perks, such as bonus interest for regular deposits or cashback rewards.

• Interest Rate: Look for accounts with competitive interest rates that offer higher returns.
• Compounding Frequency: Check how often the interest is compounded (daily, monthly, or annually) as more frequent compounding can boost your savings.
• Account Fees: Choose an account with minimal fees, such as maintenance or transaction charges, to maximise your earnings.
• Minimum Balance Requirement: Ensure the account's minimum balance requirement aligns with your financial capabilities.
• Access to Funds: Consider the convenience of accessing your funds through online banking, ATMs, or in-branch services.
• Customer Service and Reputation: Opt for banks with good reviews and a reliable, responsive customer support team.
• UFB Direct: Offers a high-yield savings account with no minimum deposit to open and no monthly service fee.
• Bask Bank: Provides a unique Mileage Savings account where you can earn American Airlines miles, as well as a competitive yield on their Interest Savings Account.
• EverBank (formerly TIAA Bank): Offers a Performance Savings account with no minimum deposit and a yield higher than the national average.
• Popular Direct: Requires a $100 minimum deposit to open but has no monthly maintenance fee and offers mobile deposit.
• Salem Five Direct: Requires a low minimum deposit of $10 to open, with no monthly service fee or minimum balance requirements, and offers mobile check deposit.
• CIBC Bank USA: Offers a competitive yield on their Agility Online Savings Account with a $1,000 minimum deposit and no monthly service fee.
• CIT Bank: Provides multiple savings accounts, including the Platinum Savings account with a high yield on balances of $5,000 or more, and the Savings Connect account with a $100 minimum deposit.
• Citizens Access: Features a high-yield online savings account with no maintenance fee and a minimum deposit of just $1.
• Capital One: Offers a competitive yield on their 360 Performance Savings Account, with no monthly service fee and no minimum deposit requirement.

Certificates of Deposit

CDs are a good option for those who want to earn more on their money without the risks associated with stocks and bonds. The interest rates offered by CDs are usually higher than those of savings accounts and money markets, but they come with less withdrawal flexibility. If you withdraw your funds from a CD early, you will be charged a penalty.

When considering a CD, it's important to shop around and compare interest rates, as these can vary widely across different institutions. Additionally, be sure to review the disclosure statement, which should outline the interest rate, payment schedule, maturity date, and any early withdrawal penalties.

While CDs offer a stable and predictable return, they may not offer significant growth potential when compared to riskier investments. There is also a risk that inflation will outpace the interest earned on the CD, resulting in lower real returns over time.

Dividend-paying stocks

When a company earns profits, its management has a few options. They can choose to retain the profits and reinvest them into the company to boost future profits and stock appreciation. Alternatively, they can distribute a portion of the profits to shareholders in the form of dividends. A company must have an above-average growth rate to justify reinvesting in itself rather than paying dividends. Typically, when a company's growth slows, its stock price won't climb as steeply, and dividends become necessary to keep shareholders around. This slowdown in growth happens to most companies after they attain a large market capitalization.

For investors, dividend-paying stocks offer a steady flow of additional income. Monthly dividends, in particular, make budgeting easier by providing a more frequent cash flow. Dividend-paying stocks are especially attractive to retirees and those on a fixed budget or using their stock holdings as a source of income. Dividend-paying stocks can also be seen as a safer investment option, as they are less volatile than growth stocks that don't pay dividends. Dividend-paying stocks tend to exhibit moderately different pricing characteristics due to the regular income they provide, similar to a bond.

• JPMorgan Chase & Co. (JPM)
• Procter & Gamble Co. (PG)
• Johnson & Johnson (JNJ)
• Home Depot Inc. (HD)
• Merck & Co. Inc. (MRK)
• Cisco Systems Inc. (CSCO)
• Gladstone Capital Corp. (GLAD)
• Realty Income Corp. (O)
• Cross Timbers Royalty Trust (CRT)
• Permian Basin Royalty Trust (PBT)

Bonds

The bond market is where corporations and governments go to borrow money, and when you buy corporate or government bonds, you are acting as their lender. Bonds pay interest rates that vary widely depending on the financial strength of the issuer, the length of the bond, and other factors. While most bonds pay interest annually, semi-annually, or at the end of their term, some pay interest monthly. These monthly interest savings accounts are a safe and reliable investment option, offering a regular source of income.

Monthly interest bonds pay interest monthly on a lump sum deposited for a fixed term. These bonds are one of the best options if you are looking for an account that will provide you with a regular monthly income. When choosing a monthly interest bond, ensure that the account you select has the option of interest being 'paid away', meaning it is paid into your bank account. Some accounts may only compound the interest or pay it when the bond matures, restricting your access to the income.

Where can I find monthly interest bonds?

There are a variety of financial institutions that offer monthly interest bonds, including the Post Office in the UK. The Post Office Online Bond, provided by the Bank of Ireland UK, offers a guaranteed interest rate and the flexibility of choosing between monthly or annual interest payments. This bond has a minimum investment amount of £500, up to a maximum of £2 million. It is important to note that early withdrawals are typically not allowed, and you may be charged a penalty for accessing your funds before the bond matures.

Things to consider

While monthly interest bonds can provide a steady source of income, it is important to carefully consider your investment options. Consult a financial advisor to help you build a diverse portfolio that meets your individual needs and goals. Additionally, be sure to compare the interest rates and terms offered by different financial institutions before making your decision.

Annuities

An annuity is a contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future. You can buy an annuity by making either a single payment or a series of payments. Similarly, your payout may come either as one lump-sum payment or as a series of payments over time.

People typically buy annuities to help manage their income in retirement. Annuities provide three things:

• Periodic payments for a specific amount of time. This may be for the rest of your life, or the life of your spouse or another person.
• Death benefits. If you die before you start receiving payments, the person you name as your beneficiary receives a specific payment.
• Tax-deferred growth. You pay no taxes on the income and investment gains from your annuity until you withdraw the money.

There are three basic types of annuities: fixed, variable and indexed. Here is how they work:

Fixed Annuity

The insurance company promises you a minimum rate of interest and a fixed amount of periodic payments. Fixed annuities are regulated by state insurance commissioners.

Variable Annuity

The insurance company allows you to direct your annuity payments to different investment options, usually mutual funds. Your payout will vary depending on how much you put in, the rate of return on your investments, and expenses. The SEC regulates variable annuities.

Indexed Annuity

This annuity combines features of securities and insurance products. The insurance company credits you with a return that is based on a stock market index, such as the Standard & Poor’s 500 Index. Indexed annuities are regulated by state insurance commissioners.

The accumulation phase is the first stage of an annuity, whereby investors fund the product with either a lump-sum payment or periodic payments. The annuitant begins receiving payments after the annuitization period for a fixed period or for the rest of their life.

Immediate annuities are often purchased by people of any age who have received a large lump sum of money, such as a settlement or lottery win, and who prefer to exchange it for cash flows into the future. Deferred annuities are structured to grow on a tax-deferred basis and provide annuitants with guaranteed income that begins on a date they specify.

Variable annuities are regulated by the Securities and Exchange Commission (SEC) and state insurance commissioners. Fixed annuities are not securities and are therefore regulated only by state insurance commissioners. Indexed annuities are normally regulated by a state insurance commissioner. If they are registered as securities, they are also regulated by the SEC.

The Financial Industry Regulatory Authority (FINRA) also regulates variable and registered indexed annuities. Agents or brokers selling annuities need to hold a state-issued life insurance license, and a securities license in the case of variable annuities. These agents or brokers typically earn a commission based on the notional value of the annuity contract.

Frequently asked questions