Don't believe the best buy tables, it's possible to earn 4% interest on your savings. Regular Savings accounts are a hidden species that pay big as long as you're prepared to feed them every month.
This step-by-step guide includes all best-buy regular savers, plus tricks to help you maximise your interest.
In This Guide
Best Buys: Regular Savers
What are regular savings account?
The clue's in the name. Regular Savings accounts require you to put money away each month. They offer blockbuster interest rates, but tend to impose rigid terms and conditions, like limiting the amount of withdrawals you can make, or forcing you to make a deposit every month.
How can they pay such huge interest rates?
Often these accounts only last a year, and there are strict limits on the amount you can save. Banks commonly use them as advertising tools, promising eye-catching interest rates, in order to grab your custom in the hope of flogging or forcing you to have their other products too.
Once it ends, your cash is usually swept into a bog-standard account. So note the date, then ditch and switch to a better deal immediately.
How does the interest work?
One point to note is that the interest received will be around half the interest rate of the account as the money is being saved monthly rather than in one lump sum. To maximise your overall interest use the dripfeeding technique below.
When are they worth using?
While for pure interest rates, the top regular savers are unbeatable, they are taxed, meaning basic rate taxpayers lose 20% of any interest earned, higher rate 40%. This means, for many, the returns won't be as good as putting the cash in a tax-free Cash ISA; plus, if you don't use your £5,100 (increased this year, read full details) ISA allowance in a tax-year, you lose it.
Thus usually the right strategy is first fill your ISA each year and once that's done plump for the best regular savers (for more info see the Where to Start Saving guide). Yet occasionally a regular savings account will pay so much, it can beat even the top untaxed ISA; the calculator below will help you compare.
How safe are your savings
Bank collapse was once easy to dismiss, then the credit crunch and global market turmoil hit. The UK soon found itself bailing out Northern Rock, and the US authorities followed for even bigger bank Bear Stearns. This means these days every sensible saver should ask “is my money safe?.
The answer is quite simple. Provided your money is in a UK regulated bank or building society account, it’s protected under the Financial Services Compensation Scheme (FSCS) and here’s the golden rule.
The first £50,000 per person, per financial institution is guaranteed.
Sadly this is the simple face of savings safety; the exact rules are more complex involving how different banks are registered and what counts as a financial institution. For full info read the full Are My Savings Safe? guide.
How to maximise safety
With regular savers, often there's no problem at all. Limits on the amount you can deposit usually mean the balance of the account gets nowhere near £50,000 there's no problem.
Yet for regular savers which let you deposit more than that, or if you have savings in other accounts with the same bank, then in the unlikely event a bank or building society went bust, for total peace of mind don’t put more than £50,000 in any one institution; spread it around.
For those with very large amounts of savings (for example a house sale) this could lead to lots of accounts, even if you've too much to stick to the £50,000 limit for each one, the general rule of not having all your eggs in one basket still works. For more info see the how to get 100% safety section of the savings safety guide.
This guide and best buys
It's impossible to pick "which bank is in trouble?", we've seen great names of world banking like Goldman Sachs and Merrill Lynch in trouble. Therefore the only solution for this site is that we'll report the top rates regardless, alongside explaining any 'protection oddities'. So far, world governments have reacted to protect their banks and no savers have lost money, and its likely (though not certain) that will continue.
The Top Accounts
There's no restrictions on how many regular savings accounts you can have and as they all limit the amount of cash you can put away, you may want to use more than one.
Unless stated, all the accounts have full protection under the £50,000 per person, per institution rules. Though do check how institutions are linked and other notes in the safe savings guide.
The following accounts are available to both new and existing customers to these banks, and don't require you to hold another product (e.g. current account) with it.
Santander 4% AER for 13 months.
Longest term but low flexibility. Branch/Phone only. The longest top rate is available with Santander's Fixed Rate Monthly Saver (Issue 12) which pays 4% AER for 13 months. Each month you can save between £20 and £250.
The rate for the account is 6% if you open a Santander current account at the same time.
If you pay in less than £20 you will receive 0.1% for that month, if you pay over £250 you will get just 0.1% for the remainder of the time you hold the account, so make sure you stick within these amounts. The account can be accessed in branches or by phone only.
Quick Stats. Rate: 4% AER fixed for 13 mths. Monthly Deposit: £20-250. Make withdrawals?: No Miss a payment? No Operated by: Branch/Phone Principality 4% AER for 12 months.
Big deposit levels, but no flexibility. You can get the same rate with Principality's Regular Saver Bond (Issue 10) which pays a fixed 4% AER for a year. Here you can save from £20 up to an impressive £500 per month.
However it's strict: miss any payment or make withdrawals, and the rate will drop to 0.1% for the WHOLE 12 months, so if you can't stick to those terms, avoid this like the plague. The account can be accessed in branches or by post only.
Quick Stats.Promo Rate: 4% AER fixed for 12 mths. Monthly Deposit: £20-500. Make withdrawals?: No Miss a payment? No Operated by: Branch/Post Saffron BS 4% AER fixed for 12 months.
Branch only. Can miss payments AND withdraw cash. If you live near a Saffron BS branch or agency its 12 month fixed rate regular saver pays 4% AER. You can save between £10 and £200, but the real bonus here is that you can make unlimited withdrawals through branches or by post and you can miss payments.
You can only apply in branches, so check its list of branches first. The balance must remain above £10 or you will get 0.05% AER, once the balance goes back over £10 the rate will revert to 4% again.
Quick Stats. Rate: 4% AER fixed for 12 mths. Monthly Deposit: £10-200. Make withdrawals?: Yes Miss a payment? Yes Operated by: BranchSpecialised Alternatives
Santander 5% 'First Home Saver'.
Lets you save up to £5,000 lump sum at the startThe Santander (formerly Abbey) First Home Saver pays 5% gross interest, and lets you start it off with a lump sum deposit between £100 and £5,000. After that you must save between £100 and £300 per month, else the interest rate will fall to 0.1% for that month.
This is open to anyone under 35, who hasn't had a mortgage in their name (as the intention is for first time home buyers to use this as a savings pot). For full details of how this works and more eligibility requirements, read the MSE News story: Santander First Home Saver
Halifax 6% Childrens regular saver.
Great rate but small amountsThe Halifax's* Children's Regular Saver pays 6% gross interest fixed for a year, however you can only deposit £10-£100 per month. Also withdraw money or miss a payment and the account is moved to the save4it account, where all money saved will earn interest at 1.05% AER instead.
Any adult can open this in trust for any given child i.e. if Mum, Dad, Uncle Jack, Aunty Jill or even Dave from down the pub, so little Jonny could have five of these 6% AER paying accounts.
Opening an account in a child's name means that, if as is usual, your child doesn't earn enough to pay tax, they're tax free (a full explanation of children's account tax is in the Best Child Savings guide).
Up to 8%, but don't bother...
HSBC's Regular Saver pays 8% AER if you have its Premier, Plus, Graduate Plus or Passport current accounts, yet the rate is diminished as all of these charge a monthly subscription fee. You can also get 4% if you're a Current Account or Graduate Account customer, yet here, the benefit is unlikely to outweight the cost of having a non-competitive current account.
Local building societies often offer good rates too, such as Nottingham Building Society currently, so keep your eyes peeled in branches.
Don't believe the bad press
Sadly regular saver accounts often receive negative publicity due to a flawed understanding. Many people say they've used regular savers, but only received around half the interest they thought they would... yet that's because they expected the wrong amount, not because they were underpaid. Here's a wee example...
Mr Matt Mattics and his £3,000 savings
Matt has saved a total of £3,000 in a regular savings account paying 10% interest over a year, and is a non-taxpayer.
What Matt expects to earn? His simple sum works out that he's put £3,000 in at 10% therefore he should earn £300 in interest
Why is this wrong? Matt only had £3,000 in there for the last month; it took a year to build up to that amount. You only earn interest on money in the account. So after the first month he was earning the 10% on just £250, half way through the year he was earning it on £1,500 .
How Matt should work it out? Over the year, his average balance was roughly half the £3,000, in other words £1,500... so Matt should expect to earn around 10% of £1,500 over the year, which is £150.
Dripfeeding: How to save a lump sum
The problem with regular savings accounts is it takes time to build up the amount of money you have in there. So while they promise high interest, this is often just on a small amount of money. Yet if you have a lump sum of cash, and you want to maximise its earning, you can still take advantage
Put the lump sum in the top normal savings account
Put the lump sum you wish to save in a normal savings account paying as much interest as possible (see Top Savings Accounts).
Pay the money into the regular saver from the savings account
Now make payments into the regular saver straight from your normal savings account each month, instead of from your current account. Not all savings account allow this, so do check before you set the account up (you may have to move the cash to a current account first, then to the regular saver.
I call this technique 'drip-feeding', as you're slowly moving your cash across, month by month. And it means every penny you want to save is earning the most its can possibly do at any one moment. Here's how it should work in practice, lets take the same £3,000 savings as in the Mr. Matt Mattics example above...
| Month | Top savings account | Regular savings |
|---|---|---|
0 |
£3,000 |
£0 |
1 |
£2,750 |
£250 |
2 |
£2,500 |
£500 |
3 |
£2,250 |
£750 |
4 |
£2,000 |
£1,000 |
To get the maximum gain, put as much in as possible in the early months, but always ensure you've enough left to keep up the minimum payments for the account's lifespan. Then you’ve got as much interest as possible, while meeting the account’s terms and conditions.
The Regular Savings Calculator
Below is a special calculator designed to help you work out what you'll earn from Regular Savings. It has two options...
Regular Savings Only. Choose this if you want to know how much you’ll get from a Regular Saver alone.
Drip Feed Calculator. If you want to save a lump sum, and are using the drip feed route above, this will tell you how much you get, and compare it to keeping the money in your normal savings account.
For the most accurate answer use the AER (Annual Equivalent Rate) which should be listed on your statement. Do remember, most normal savings accounts are variable rates, so the drip feed calculation will change if the rate does – but it’s a good indicator of the returns.
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