Is this the end of the regular saver?

Should I use a regular savings account?

If you currently have a regular saver, especially if it's one of the ones that pays you 5% (so, M&S customers, and HSBC and First Direct customers who already have a 5% account), then hold on tight to that for as long as it lasts, as the rate's fixed for 12 months from when you took it out. But, when it comes to renewal once your year is up, or if you're a new customer thinking of taking one out, it's not as straightforward as it once was.

There are two main ways people use regular savers, either to save directly from their salary, or to move money over from other savings throughout the year to maximise interest. We've analysed each of these in turn:

Option 1: You save from your income into a regular saver

If you're doing this, the regular saver will always win, provided its rate is higher than easy-access rates at the time (this is comfortably true right now for most regular savers, even after the cuts).

If you're using regular savings accounts this way, then as you're adding new money each month that you didn't previously have in savings, it's the best risk-free rate you can get on that money at that time.

The table below shows this clearly – we compare putting £250 a month in to M&S Bank's 5% saver and Virgin Money's 3% saver to putting the same amount in to the top easy access account, paying 1.46%, and the top notice account, paying 1.8%. The regular savers are the winners by far.

Option 2: You save in to a regular saver by moving money from other savings accounts

Sometimes called 'dripfeeding', this is a time-honoured regular savings account tradition for those who want to max their interest. The idea is that, say, you start with £3,000 in an easy-access account. In month one, you move £250 into the regular saver, leaving £2,750 in the easy access. You'll continue to do so throughout the year, and by the end, you have £3,000 in the regular saver, and £0 in the easy-access account. Then you start again the year after.

This technique means all the money is earning interest in one account or another for the entire year. So how does this affect the calculations of which account gets you the most interest? We compare this 'dripfeeding into the regular saver' technique with leaving the £3,000 in a notice account, a one-year fixed rate bond, and an easy access account for the full year.

Obviously, feeding money in to a 5% regular saver from an easy-access account always wins, and that's still the case for a 3% regular saver (and even a rate of 2.75% of interest for new or renewing HSBC and First Direct regular saver customers leaves you £10 up compared with the other options).

If you use this 'dripfeeding' technique, you'd need regular savers to get down to around 2.25% (and all other accounts to stay the same) before you start hitting parity with the notice account's 1.8% in terms of actual interest paid out.