Reinvest, Semi-annual or Monthly

Fixed-rate RSBs offer three interest-payment options. All three apply the same headline rate; what differs is when the interest hits your account, and whether it gets re-borrowed by Treasury at the same rate.

The three options

• Reinvest. Interest accrues silently inside the bond at the headline rate. At maturity you receive your capital plus the compounded growth. No cash arrives in the meantime.
• Semi-annual. Interest is paid into your bank account every six months. The capital itself does not grow. You're free to do whatever you want with the cash — spend it, invest it elsewhere, top up another RSB.
• Monthly. Interest is paid into your bank account on the last day of each month. Same trade-off as semi-annual, just at higher frequency. Any investor can choose it on a Fixed Rate bond.

The Top-Up bond only offers Reinvest. Inflation-Linked bonds only offer Semi-annual.

When Reinvest is the right call

If your honest answer to "what would I do with the cash if it arrived?" is "leave it in a low-interest current account", Reinvest is strictly better. You're letting the bond compound at the bond's rate instead of letting cash earn nothing.

Reinvest also matters when the bond's rate is higher than what you can re-deploy into. If the 5-year fixed is at 11% and the best alternative for the cash is a 6% money-market fund, every coupon you take out costs you the difference, compounded over the bond's life.

When Semi-annual or Monthly is the right call

Two scenarios make payout the rational choice:

1. You need the income. Retirees and others living off interest pick payout because that's the whole point of the holding.
2. You can re-deploy the cash at a better rate than the bond. In a steeply rising-rate environment, taking the cash and putting it into a newly-issued higher-rate bond compounds faster than letting the original bond reinvest at its lower legacy rate. This is also what the Restart option exists to do — see the separate article.

Tax does not change the answer

Tax is not a reason to pick one option over another. Interest is taxable as it accrues, whether it lands in your bank account or is reinvested inside the bond. Reinvesting does not defer the tax to maturity, and taking payouts does not move income into a year where your exemption is unused.

The practical difference is cash. On Reinvest the bond pays you nothing until maturity, so any tax due has to come from somewhere else. See Interest exemptions and the over-65 threshold.

What the calculator does

In the Restart Simulator and Real Return calculator we model interest at the bond's headline rate regardless of the option, on the assumption that any cash paid out earns the same rate elsewhere. That is the neutral assumption — fine for like-for-like product comparison. Your own choice depends on whether the alternative re-deployment really is at the headline rate or below it.