Regular Savings Accounts
Earn up to 5% on your savings
Believe it or not, it's possible to earn 5% interest on savings tax-free. Regular savings accounts are a hidden species that pay big if you feed them every month – we've all the best buys in this guide, plus tricks to maximise your interest.
What are regular savings accounts?
The clue's in the name. Most regular savings accounts require you to put money away each month with interest paid yearly (unless otherwise stated). They offer blockbuster interest rates, but tend to impose rigid terms and conditions, such as 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 limit the amount you can save. Banks commonly use them as advertising tools, promising eye-catching interest rates (the top ones pay 5%) to grab your custom – many of them are linked accounts, meaning to get them, you need to have the bank's current account too.
Once it ends, your cash usually sweeps into a bog-standard account – so ditch 'n' switch to a better deal.
How does the interest work?
All interest from regular savings accounts is now paid tax free due to the personal saving allowance. Basic-rate taxpayers can earn £1,000 tax-free and higher-rate taxpayers £500. Additional-rate taxpayers get no allowance.
On regular savings 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 drip-feeding technique below.
When are they worth using?
As ISA rates have dropped and all savings interest is now paid tax free, start by filling your high-interest current account(s) up to the limit (usually around £2,000-£5,000), then trickle your money into regular savings (for more info, see the Where to Start Saving guide).
Rather watch than read? This helpful little video gives you the regular savings lowdown...
How safe are your savings?
After the calamities that hit several big banks such as Northern Rock, RBS and the Lloyds group, every saver should ask: "Is my money safe?" The answer is simple. Provided your money is in a UK-regulated bank or building society account, it's protected under the Financial Services Compensation Scheme (FSCS). Here's the golden rule.
The first £85,000 per person, per financial institution is guaranteed.
How to maximise safety
With most regular savers, limits on the amount you can deposit mean the balance gets nowhere near £85,000, so 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, don't put more than £85,000 in any one institution – spread it around. See how to get 100% safety.
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Top-rate linked accounts
The top-paying regular savers come with a big 'but' attached – you must also hold or switch to the same bank's current account. There's one account paying 5% from M&S Bank. Other linked regular savers are in the table below. See what your bank offers.
The M&S Bank monthly saver pays 5% AER fixed for a year and you can save between £25 and £250 each month (if you miss a month or deposit less than £25, your account will be closed and you'll earn just 0.35% interest on anything you've already saved).
To get the account, you must have switched to M&S Bank's current account using M&S's switching service and have two active direct debits. You also get a £100 0% overdraft – good if you occasionally dip in and out of the red.
Rate: 5% AER fixed for 12 months
Min/max deposit: £25/£250 per month (can carry over remaining allowance)
How to open/access: Online, phone or branch
Missed payments allowed: No
Withdrawals allowed during term: No, unless closing the account
Savings protection: Full
You must make deposits by setting up a standing order from your M&S current account.
You'd earn £80.64 interest (gross) if you saved the max for 12 months with this account.
|First Direct Regular Saver||2.75% AER fixed for 12 months||£25/£300||Online/app||No withdrawals allowed unless closing your account||Must have the First Direct 1st Account|
|HSBC Regular Saver||2.75% AER fixed for 12 months||£25/£250||Online/phone/branch||No withdrawals allowed unless closing your account||Must have an HSBC current account|
|Santander Regular eSaver||2.5% AER fixed for 12 months||£1/£200||Online/branch||None||Must be a Santander 123 World and/or Select customer|
|Club Lloyds Monthly Saver||2.5% AER fixed for 12 months||£25/£400 (1)||Online/phone/branch||None||Must have a Club Lloyds account|
|Bank of Scotland Monthly Saver||2% AER fixed for 12 months||£25/£250 (1)||Online/phone/branch||None||Must have a Bank of Scotland current account|
|TSB Monthly Saver||2% AER fixed for 12 months||£25/£250 (2)||Online/branch||None||Must have a TSB current account|
|(1) Can miss payments, but payments below £25 will be returned. You can only make one deposit per month by standing order, which must arrive by 25th. (2) Can miss payments, but payments below £25 will be returned. You can only make one deposit per month|
The top open-to-all accounts
If you don't have the current accounts necessary to unlock the big-paying accounts above, check out the top open-to-all accounts that aren't linked to other products. These accounts are increasingly rare, and tend to be offered by small, local building societies as branch-based accounts. Check if there's a decent account near you.
The Virgin Money regular saver pays 3% AER fixed until 1 November 2020 and you can save from £1 to £250 each month. The account allows unlimited penalty-free withdrawals and there's no penalty if you miss a monthly payment.
To open this account, you must visit a Virgin Money branch (find your nearest).
Rate: 3% AER fixed until 1 November 2020
Min/max deposit: £1/£250 per month (can't carry over remaining allowance)
How to open/access: Branch
Missed payments allowed: Yes
Withdrawals allowed during term: Yes
Savings protection: Full
You can fund the account by bank transfer, cheque or depositing cash in branch.
You'd earn £48 interest (gross) if you saved the max for 12 months with this account.
The Coventry Building Society regular saver pays 2.5% AER variable and unusually lets you save a fairly large amount: up to £500 each month. There's no penalty if you miss a monthly payment. You can access your cash in this account, but there's a 30 day interest penalty each time, so try to minimise withdrawals.
Note: After 12 months your funds will be transferred to Coventry's Easy Access Saver which'll pay a lower rate of interest - so it's best to move your cash once the year's up (unless the variable rate decreases before then).
Children can earn 4.5% - though withdrawals are limited
If you've a child aged 15 or under, you can get 4.5% AER fixed for a year with the Halifax kids' regular saver. However, withdrawals are limited and you (or they) can only save between £10 and £100 a month. For more on this account, see our kids' savings guide.
Local building societies
Local building societies often offer good rates too on branch-only accounts, so keep your eyes peeled if you're visiting or walking past. We've listed a few of the top accounts below, but they're only available if you live near a branch.
South and east England
If you live near a Saffron Building Society branch, you could get its 12-month fixed-rate regular saver. It pays 3% AER for 12 months and you can deposit between £10 and £250 every month. You must open the account in a branch, and these are located in Essex, Hertfordshire and Suffolk. You can check if you live near a branch here. You can also apply by post if you're already a Saffron customer.
Ipswich Building Society offers 2.9% AER to residents in selected postcodes near Ipswich, though this rate includes a one year fixed bonus of 2.5% payable when 11 payments have been paid into the account.
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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 an 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.
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.
Drip-feeding: How to maximise the interest
While regular savings account can pay up to 5%, the problem with them is that it takes time to build up the amount of money you have in there. Yet if you have a lump sum of cash, and you want to maximise its earnings, you can still take advantage.
Put the lump sum in the top paying current account
Some current accounts pay higher interest than normal easy-access savings accounts, so put the lump sum you wish to save in one of these high interest current accounts (see Top interest-paying current accounts).
Pay the money into the regular saver from the current account
Now make payments into the regular saver straight from your high interest current account each month. The key is to put as much as you can (up to the monthly limit) into the regular savings account to max the interest.
This technique is called 'drip-feeding', as you're slowly moving your cash across, month by month. This means every penny you want to save is earning the most it can possibly do at any one moment. Here's how it should work in practice. Let's take the same £3,000 savings as in the Mr Matt Mattics example above...
The Regular Savings Calculator
Below is a special calculator designed to help you work out what you'll earn from regular savings. It assumes your savings are covered by the relevant PSA for your tax rate.
The calculator 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 with 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. 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.