Don't believe the best buy tables, it's possible to earn 4.25% interest on your savings, but you must act quick. Regular Savings accounts are a hidden species that pay well over the odds as long as you're prepared to feed them every month. Yet if you're clever, it's actually possible to dunk lump sums in there too.
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.
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 £3,600 (increasing to £5,100, 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.
Top Rate Regular Savers Accounts
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.
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Barclays 4.25% AER for 12 months. Top rate, flexible, plus access to your cash
The Barclays Monthly Savings account pays a fixed 4.25% AER for twelve months, and lets you save up to £250/month. New customers need to go into a branch to open the account, possibly as an attempt to flog you more Barclays products - so beware. EXISTING customers can apply online via this link.
This is a rarity in the regular saver world, allowing you to miss as many monthly payments as you like without any penalty; plus you can withdraw cash whenever you like, though if you do the interest for the following month drops to 3.03%.
Rate: 4.25% AER fixed for 12 mths. Monthly Deposit: £20-250. Make withdrawals?: Yes, interest drops to 3.03% in any month you do this. Miss a payment? Yes Operated by: Online/Phone/Branch -
Halifax 4% AER for 12 months. Heavy restrictions, but you can save £500/month
For one year, Halifax's Regular Saver pays a fixed interest rate of 4% AER, and allows a big £500 to be deposited each month. Be warned though, its rules are rigid.
Miss a payment, or withdraw cash at any point during the year and it'll be closed, and the interest will plummet to 1.26%, backdated for the whole time you were saving. Thus if you can't meet its minimum £25/month deposit for the year, or may need access to the cash, don't get it. Once the year's over, the money is automatically swept to a bog-standard Halifax savings account.
Rate: 4% AER fixed for 12 mths. Monthly Deposit: £25-500. Make withdrawals?: No Miss a payment? No Operated by: Online/Phone/Branch - Abbey 4% AER for 12 months. With some flexibility
The Abbey Fixed Rate Monthly Saver lets you save between £20 and £250 per month, at 4% AER for a year. The account lets you make one withdrawal during the twelve month term, although the rate drops slightly to 3.67% AER. Deposit under £20 per month or make a further withdrawal and the interest drops to 0.1% for that month only. Deposit over £250 and the rate drops to 0.1% for that month AND the remainder of the term.
Abbey is a full UK subsidiary of Spanish bank Santander, and shares a licence with Bradford and Bingley, Asda and Cahoot so you only get £50k worth of protection across all four of those institutions. For full details read the What counts as a bank? section of Savings Safety guide. Rate: 4% AER fixed for 12 mths. Monthly Deposit: £20-500. Make withdrawals?: Yes, one, and the interest drops to 3.67% if you do Miss a payment? Yes, interest drops to 0.1% in any month you do Operated by: Phone/Branch -
Halifax 6% Childrens regular saver. Great rate but small amounts
The 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).
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Lloyds 5% AER for 12 months. But you NEED a Lloyds current account.
Lloyds TSB current account customers can bag its Monthly Saver which pays 5% AER, fixed for twelve months, and lets you deposit between £25 and £250/month. Handily, you can make unlimited, penalty-free withdrawals here, meaning your cash isn't fully locked away. It's good, but whether it's worth getting an uncompetitive Lloyds bank account for is a different matter
You can also miss payments without facing decreased interest or account closure, though if you do miss a monthly payment you won;t be able to make it up later on. You can apply by phone or in branch, plus accounts can be operated online. After 12 months, your cash moves to the low-paying EasySaver, so switch to a top savings account at that point. Rate: 5% AER fixed for 12 mths. Monthly Deposit: £25-250. Make withdrawals?: Yes, no penalty. Miss a payment? Yes Operated by: Online/Phone/Branch -
Up to 8%, but don't bother...
HSBC's Regular Saver pays 8% AER if you have its Premier, Bank Account 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 Advance 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, so keep your eyes peeled in their branches.
Top Regular Saver Cash ISAs
A Cash ISA is simply tax-free savings accounts that let you save up to £3,600 per tax year (April to April), if you're over 16 (see the Cash ISA Guide for more info). Regular saver cash ISAs are like normal regular savings accounts, but tax free, boosting the return.
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First Direct 7% AER for 12 months. Online account for existing customers
The First Direct Regular Saver ISA pays 7% AER, yet this online account is only available for those who have a First Direct 1st account, which is a fees-free account provided you earn £23,300 or over (read more in the Best Bank Accounts guide).
You can save from £25 to £300 each month but you can not miss a payment or withdraw money; if you do, the account changes to the e-ISA, currently paying a low 0.5% AER.
Rate: 7% AER fixed for 12 mths. Monthly Deposit: £25-300. Make withdrawals?: No Miss a payment? No Operated by: Online/Post/Tel
Be careful if it's not the start of the tax year.
You’re only allowed one cash ISA per tax year (see Cash ISA Guide) and these accounts last 12 months, so opening one at any time other than the start of the tax year means you’re automatically choosing next year's cash ISA now.
Plus by the time the regular saver cash ISA ends, you mightn't have used all of next year’s cash ISA allocation, though you should be able to top it up in whatever cash ISA it becomes.
This might sound a tad confusing, so an example should help...
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Sally Saver hasn’t done a cash ISA for the 2008/9 tax year, so she opens a regular saver cash ISA on 27 Feb 2009 with the max. £300 a month. In month three, her April money goes in, so she has effectively paid into a new 2009/10 tax-year cash ISA with the same bank, and as she’s only allowed one cash ISA a year, that’s her lot.
By the Feb 2010 the regular saver cash ISA automatically becomes an easy access cash ISA. Sally’s put £3,000 in, and still has £600 left of the year’s allowance. Yet she can simply add that to the easy access cash ISA, or transfer the whole lot to a higher payer.
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 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...
How to drip-feed £3,000 into regular savings
| 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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