Regular Savings Accounts

Don't believe the best buy tables, it's possible to earn 4.5% interest on your savings. 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?
• How safe are your savings?
• The Top Accounts
• BEST BUYS: Normal Regular Savers
• Don't believe the bad press
• Dripfeeding: How to save a lump sum
• Calculator: How much will you earn?

Dripfeed your way to 4.5% savings

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 £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.

• Principality 4.5% AER for 12 months.
  Branch/Post only, no flexibility. Fixed rate.

  If you want to save between £20 and £500 per month, Principality's Regular Saver Bond (Issue 9) pays a fixed 4.5% AER for a year. However, miss any payment or make withdrawals, and the rate will drop to 0.1% for the whole 12 months. The account can be accessed in branches or by post only.

  Rate: 4.5% AER fixed for 12 mths. Monthly Deposit: £20-500. Make withdrawals?: No Miss a payment? No Operated by: Branch/Post

• Barclays 4.25% AER for 12 months.
  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

• Norwich & Peterborough 4% AER for 12 months.
  Flexible, Save from £1/month.

  The top payer is from Norwich & Peterborough, which pays 4% AER (inc 1.5% fixed bonus) and is flexible; it lets you deposit between £1 and £250 per month. You get the bonus if you make 12 monthly deposits and you don't make more than one withdrawal.

  The account can be opened by post or in branches. Once opened it can also be operated online.

  Rate: 4% AER (inc 1.5% fixed bonus). Monthly Deposit: £1-250. Make withdrawals?: Yes, 1 is allowed Miss a payment? No Operated by: Post/Branch/Online

Specialised Alternatives

• Santander 5% 'First Home Saver'.
  Lets you save up to £5,000 lump sum at the start

  The 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 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).

• 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, so keep your eyes peeled in their 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...

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...

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.
  

How much will you save each month? £

What’s the interest rate? (before tax) %

How long will you save for? years and months time.

How much tax do you pay? No Tax Basic Rate Higher Rate

How far ahead do you want to look? years and months time.

How much tax do you pay? No Tax Basic Rate Higher Rate

NORMAL SAVINGS ACCOUNT

What's the interest rate before tax? %

How much do you have saved in there? £

REGULAR SAVER

What’s the interest rate before tax? %

How much will you pay in each month? £

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.