Savings account Guides

Regular savings accounts

By Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

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Regular savings accounts are offering some great interest rates at the moment, so what’s the catch? (Updated 18/8/09)

Regular savings accounts are a fairly new addition to the savings market, offering high rates of interest to customers who guarantee to pay in a certain amount to their account each month.

Specifically designed for those just beginning to save, they can be a great way to get into the savings habit and earn good returns, but are they suitable for everyone?

In this guide, we consider who might be suitable for a regular savings account as well as looking at the possible downsides of saving this way and finding out what's available now.

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• What are regular savings accounts?
• What are the advantages of regular savings accounts?
• What are the disadvantages of regular savings accounts?
• Who are regular savings accounts suitable for?
• What’s available?
• Our recommendations

What are regular savings accounts?

Regular savings accounts are just what they say on the tin - savings accounts that you must pay money into regularly.

They offer attractive interest rates, which are usually fixed for one year, and in return they ask that you pay a certain amount into the account each month, usually by standing order. There will normally be minimum and maximum limits on how much you can invest each month.

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What are the advantages of regular savings accounts?

The main advantage of regular savings accounts is they pay higher interest rates than standard savings accounts. Provided you stay within the terms and conditions, these accounts can provide great returns on your cash.

A secondary advantage is the fact that that, because you normally have to pay in a certain amount each month, you are encouraged to get into the savings habit – steady and often is the key to building up a healthy savings pot!

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What are the disadvantages of regular savings accounts?

There are several catches to be aware of with regular savings accounts, some of which will mean the account may not be suitable for you, and some of which are just good to keep an eye on. These are as follows:

• There will be a maximum limit to how much you can save each month - you can’t pay-in large sums
• You must pay in a minimum amount each month – if you miss this payment you are likely to be penalised
• You will be penalised for making withdrawals – so this isn’t a place to store cash you may need easy access to
• The high interest rate is normally only fixed for one year and is likely to drop dramatically after this period – you need to be ready to switch accounts when your rate drops
• Some regular savings accounts come with some very odd strings attached (for example, they may require you to take out another certain product from the same provider) so be sure to check out all the terms and conditions before you sign up.

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Who are regular savings accounts suitable for?

New and special savers

Regular savings accounts are great for those who are just joining the savings game as they allow you to build up capital steadily, getting you into the savings habit whilst providing good returns on your cash.

For the same reasons, they are also good for those who have resolved to save up for something special, for example a wedding or a car.

However, you do need to be disciplined to get the most from your regular savings account and you should make sure that you will be able to meet the minimum monthly payments before signing up. If you miss one payment you may lose the high rate of interest for that month – or in some cases, for the life of the account.

These accounts also tend to penalise withdrawals, so don’t store your cash in them if you are likely to need it back within the next year.

Seasoned savers

Regular saver accounts are not really designed for people who already have a lot of savings – because of the maximum monthly limits, you cannot transfer in large amounts of existing savings.

However, the interest rates currently offered on regular savings accounts are so attractive that even if you have lots of savings, they could be very tempting and it could work to your advantage to use one of these accounts.

A simple way would be to use a regular savings account for your new savings, if you are currently saving a monthly amount. However, you could easily boost this amount by adding chunks of your existing savings or you could just use your existing savings, drip-feeding them bit by bit, within the monthly limit, into your regular savings account.

Indeed, there is no limit to the number of regular savings accounts you can have, so to make the most of the high rates you could have several and invest the maximum monthly sum in each account.

This will obviously require effort however, and you should do the sums before deciding whether it’s right for you (if you have lots of savings that you don’t need access to for at least a year, you may be better off locking them up in a fixed-rate account).

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What’s available?

Sorry, The best buy is currently not available.

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Our recommendations

Switching savings accounts is easy, and if you see one you like, the advice is to open the account as soon as possible. With everyone looking to get the best savings rates at the moment, it’s likely that any great savings rates will not stay on the market for long.

Whichever account you choose, make sure you are aware of all the terms and conditions and make a note in your diary of when the high interest rate will drop. That way, when the time comes you’ll be prepared and ready to switch to the next best buy!

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