Interest is money your savings earn. The important question is what happens to that interest. If it is paid out to your everyday account, you can spend it. If it stays in the savings account, later interest can be calculated on a larger balance. That second path is often called compounding.
Neither choice is “better” in every case. It depends on whether you need income now or growth later.
A clear example
At 4% a year, £10,000 earns about £400 in the first year. If you take that £400 out and spend it, next year you start again from £10,000. If you leave it in, next year starts from £10,400, so the interest can be a little higher.
Over one year the difference may be small. Over several years, leaving interest in can make a clearer difference.
Match the product to your needs
Some fixed products pay interest monthly; others pay at the end. Yearly comparison rates such as AER or APY often assume interest is left in. If you plan to take interest out, your result will be different — and that is fine, as long as you chose it on purpose.