If you’re thinking of opening a regular savings account, read this guide to find out everything you need to know. Latest Deals breaks down the details of these accounts, and explains how to find the best regular savings account for you. We discuss their pros and cons, and answer any questions you may have.
A regular savings account, or a regular saver account, is one type of savings account.
With a regular savings account, rather than depositing a lump sum of money when you open the account, you pay into the account monthly. Regular savers typically run for one year and you’ll agree with the bank a set amount that you’ll pay in every month. Often these accounts come with better interest rates. You can read more about interest rates here.
A regular savings account could be a good option for you if you don’t have a large amount ready to deposit, but you do want to start putting money away for the future. A regular saver is a good way of getting in the habit of saving, and these accounts typically offer better interest rates than current accounts and some other types of savings accounts.
Is a regular savings account right for you?
There are various types of savings accounts, and it’s crucial that you choose the best fit for you.
A regular savings account could be the right option for you if you don’t have a lot of money ready to save, so don’t want to save it in a fixed rate bond, for example.
Or, you may want to get in the habit of saving, and a regular savings account rewards you for putting money away every month with competitive interest rates. You’ll likely get a better interest than you would with an easy access savings account. However, regular savers are not as flexible and in some cases you won’t be able to make any withdrawals.
There’s no ‘best’ savings account. But, there is one that’s best for your financial situation and goals, so it’s important to make sure you’re choosing the right option for you.
5 Things you need to know about regular savings accounts
1. You need to deposit a set amount each month
It’s important to understand that you’ll need to deposit a certain amount into the account each month. Some providers may let you miss a month, but generally if you fail to make a payment one month, you risk losing interest for the rest of the term, or your account may be closed.
It’s important to deposit as much as you can afford each month (some accounts may have a cap on how much you can deposit). This is to ensure that you’re getting as great a return as possible on your money. However, make sure you don’t overstretch yourself, as you’ll need to make sure you can afford to keep paying in every month for the length of the account.
If you’re worried you won’t be able to make a payment in a particular month, you should contact your provider and they’ll be able to explain your options.
2. The interest rate will only last for a year
Normally, the interest rates on a regular savings account will only last for a year (or sometimes two). Once the interest term has ended, the money you’ve accumulated will usually be transferred to a current account, and the interest rate will likely be much lower.
So, you should keep an eye out and when the term ends, you can take your money and transfer it to an account with a better interest rate.
You should also check whether the interest on your regular savings account is fixed or variable. Fixed means the interest rate will stay the same, whereas variable means that it can go up or down. You should keep an eye on the rate and if it goes down, you can also switch accounts, if permitted by your provider.
3. They often come with rigid terms
Even though you can get a better interest rate with a regular savings account, it’s important to note that this can come at the expense of flexibility.
Regular savings accounts often come with rigid terms, and there may be limits on how often you can withdraw money from the account, or if you can at all.
If you know that you’ll need constant access to your money, you may be more suited to an easy access savings account, and you can read more about these here.
Or, if you know you’ll be withdrawing money from your savings at some point, but not continually, a notice savings account may suit your needs, and you can read more about these here.
As well as needing to deposit a minimum amount each month, there may also be a limit on how much you can deposit. This is to control how much interest you can make on your savings. So, if you have a larger amount of money saved, a fixed rate bond may provide a better return on your money. You can read more about these here.
4. You can maximise your interest if you have a lump sum saved
Regular savings accounts often offer better interest rates than other savings accounts, but it can take a while to build up money in the account to take advantage of it.
If you don’t have a chunk of money ready to deposit, this type of account is beneficial, as you can save money each month and earn interest on it. But, if you do have a lump sum, you can still take advantage of the high interest rates that come with monthly saver accounts.
First, you can deposit your lump sum in an easy access savings account. These don’t come with the best interest rates, but you’ll be earning some return on your money, and you’ll have access to it. You can read more about easy access savings accounts here. Then, you can pay in money from your easy access savings account, to your regular savings account each month. If you decide to go down this route, you need to make sure you’re paying in as much as possible each month (up to the limit on the regular saver). This is to maximise the interest you’re earning. This method is called ‘drip-feeding’, and the aim is to earn as much interest as possible on your money.
IMPORTANT NOTE: It’s important to pay in as much as possible in the first few months of the regular savings account, so you’re earning interest on more money. But, you should also ensure you’ll have enough money in your easy access savings account to pay money throughout the length of the regular savings account’s term.
5. You can save on a low income
If you’re on a low income but you want to start saving money, you may be eligible for the government-backed Help to Save scheme. If you claim universal credit or working tax credit, the government offers you a 50% bonus if you can deposit between £1 and £50 per month. Although you don’t need to make a payment every month.
You could get a bonus of up to £1,200 a year on your savings if you qualify for the Help to Buy scheme.
IMPORTANT NOTE: Although the Help to Save scheme aims to help you save regularly, it’s important to note that this is not a regular savings account. You can read more about it here.
The pros and cons of regular savings accounts
There are negatives and positives that come with all types of savings accounts. You need to weigh up these pros and cons and compare them with your circumstances and what you’re looking for in a savings account to find the right fit for you.
Pros
Cons
You can earn interest on your money even if you don’t have a lump sum to save
You must deposit a minimum amount each month
Often you can get a better interest rate than with a current account or other savings accounts
There may be caps on how much you can pay in each month, to limit the amount of interest you can earn
You can get in the habit of putting money away each month
There may be limits to how often you can withdraw money, or if you can at all
IMPORTANT NOTE: It’s important to look at the terms of the account carefully. There will likely be limits on how often you can withdraw money, or if you can’t at all. So, make sure you have a separate emergency fund for when you need cash quickly.
Can I get a high interest regular savings account?
With a regular savings account, you’ll likely get a higher interest rate than with other savings accounts, for example easy access accounts.
There is a reason for this though, and regular savers often come with rigid terms and conditions. These include minimum monthly payments, caps on how much you can deposit each month, and limits on withdrawals.
It’s important to bear in mind that with all savings accounts, you’ll only earn interest on the total amount in the savings account. So, you need to understand how much money you’ll be earning as interest on your savings.
For example, if you’ve saved £2,400 over a year in a regular saver at 10% interest, you may expect a return of £240.
This is not the case however, as you didn’t have £2,400 in the account for the entirety of the year. It took you the course of the year to build up your savings to £2,400.
You’ll earn the headline interest rate on whatever is in your account for the first month, and then for every month after, the interest rate will reduce by 1/12th (if the account term is one year). So, for month two you’ll earn 11/12 of the interest rate, and in the last month, you’ll earn just 1/12 of it.
This means that the amount of interest you’ll earn on your money will depend on how much you pay in each month, the interest rate on the account, and whether the interest rate is fixed or variable.
Regular savings accounts are offered by most banks and building societies. Different providers and accounts will come with different terms, and usually the more rigid the terms, the better the interest rate will be.
With a higher interest rate, you’ll make more money on your savings, so it’s important to find an account with the best rate possible, whilst making sure the terms are suitable for your circumstances.
Interest rates for regular saver accounts can range from 1% to 5% (this will vary depending on the provider, the account type, and the Bank of England base rate), but it’s important to look at the terms of the account as well as the rate.
Compare regular savings accounts
Before committing to a regular saver account, you should compare options from different providers.
Some of the terms you should consider and weigh up are:
Before opening an account, make sure that the provider you’re using is covered by the Financial Services Compensation Scheme. If they are, it means your money will be covered up to £85,000 if the institution were to go bust.
If your savings are more than £85,000, you can split it amongst different savings providers, as you’ll be protected up to that amount per provider. So, all of your money will be protected.
FAQs
How many regular savings accounts can I have?
With a regular savings account, you can save a small amount of money that you top up each month. If you have more money to save, you can open multiple regular savings accounts across different providers.
There’s no limit to the number of regular saver accounts you can have, but you can only have one per institution. Opening multiple accounts can be financially beneficial, as you can earn interest on more of your money.
How much do I need to pay into a regular savings account?
It depends on the terms of the regular savings account. Providers and accounts will require different minimum monthly deposit amounts, and this usually ranges from around £10 to £500, so there should be an account that fits in with what you can realistically afford to pay in each month.
Can I open a children's regular savings account?
If your child is aged fifteen or under, there are options for your child to open a children’s regular savings account. The same principles apply, in that they’ll likely get a good interest rate, but there will be restrictions on how much and how often they need to pay in, and how often (if at all) they can withdraw money.
Which are the best regular savings accounts over 50s?
The best regular saver for you will depend on what you need from a savings account, and it won’t really matter what age you are.
You should think about your savings goals to determine whether a regular saver is right for you, and then shop around and compare options from different providers.
How do I set up a regular savings account?
It depends on the provider you’re using. With some banks, building societies or savings providers, you’ll be able to set up the regular saver account online or via the telephone. With others, you may need to set it up in person at a branch.
For some regular savings accounts, you’ll need to already have a current account with that provider to qualify. If you don’t have one, you can open one and then set up the regular saver. Remember, you’ll need to take your ID with you if you’re opening an account in person.
