Regular savers: earn 8% on your savings with no risk
With a regular savings account you can get a rate that beats even the highest-paying ISAs.
Last September, I needed to find a safe home for some spare cash that was building up each month. So I opened a Cash ISA to earn tax-free interest on my nest egg.
As soon as the new tax year began last Friday, 6 April, I started shopping around for a new Cash ISA. Sadly the rates on offer were nothing to write home about. Even the very best table-topping cash ISAs offering easy access currently pay just 3% to 3.5% a year, free of tax.
A tax-free rate of 3.5% is worth 4.375% to a basic-rate (20%) taxpayer and 5.833% to a higher-rate (40%) taxpayer. Being in the latter category, if I could find a taxable savings account paying at least 6% a year before tax, then it would beat the best easy-access cash ISAs.
The good news is that I found an ace account that beats all cash ISAs, hands down!
High return, but no risk
As I have earmarked this money for a particular purpose, I can't afford to take risks with this capital. Otherwise, I would probably use it to buy shares in big, blue-chip companies that pay high dividend incomes to their shareholders.
On Good Friday -- the very first day of the 2012/13 tax year -- I opened a new savings account. The amazing thing about this particular account is that it pays a fixed rate of 8% a year before tax. After tax, this comes to 6.4% for 20% taxpayers and 4.8% for 40% taxpayers.
8% for regular savers
Now for the bad news: this is no ordinary account, open to all. In fact, only current account customers of first direct can apply for this super savings account.
In addition, this account isn't suitable for lump sums, as it is a regular-savings account into which money is paid each month for a whole year. Then again, savers with a first direct 1st Account can open a first direct Regular Saver account and deposit between £25 and £300 a month by standing order for 12 months.
Over 12 months, the maximum balance would rise to £3,600 and the minimum final balance would be £300. According to first direct, by saving the maximum £300 a month for a year, I would earn around £156 before tax. A fifth of this (£31.20) would be deducted as tax at source, leaving me with £124.80. After paying a further £31.20 in tax, I'd be left with £93.60.
Of course, earning £93.60 on savings of £3,600 appears to work out at an interest rate of a mere 2.6% a year. However, this calculation works only for lump sums, whereas I am saving monthly. In reality, I earn around 0.391% a month after tax on my rising balance, which compounds up to 4.8% a year.
For regular saving (rather than lump sums), nothing beats this savings account, except for a similar HSBC Regular Saver account for HSBC Premier, HSBC Advance, HSBC Advance (Graduate) or HSBC Passport customers. This account accepts monthly deposits of between £25 and £250 for a year and also pays a rate of 8%.
Ace accounts open to all
Of course, my new account lasts only for a year, so I will need to withdraw my final pot and find a new home for it next April. Already, I suspect that I may open an identical account in a year's time, in order to earn another 8% before tax.
Then again, what if you're neither a customer of first direct nor HSBC and, therefore, can't have one of their table-topping accounts for regular savers? Here are the best regular savings accounts open to all customers:
|
Provider |
Account |
Interest rate (% AER) |
Min/Max per month |
Notes |
|
Norwich & Peterborough BS |
E-Family Regular Saver* Family Regular Saver* |
5.00% |
£1/£250 |
Includes 1.65% bonus for 12 months |
|
Cheshire BS |
Platinum Monthly Saver Issue 3 |
5.00% |
£100/£500 |
|
|
West Brom BS |
Fixed Rate Regular Saver (Adult) |
4.10% |
£10/£250 |
* Available to adult savers with dependent children up to 16 (18 if in full-time education).
As you can see, the N&P, Cheshire and West Brom building societies pay between 4.1% and 5% a year before tax on regular savings starting at £1 or £10 a month, up to a maximum of £250 a month. Other building societies offer similar accounts, most of which pay between 2% and 4% a year, so always shop around for savings accounts before signing up.
Finally, most regular-savings accounts don't allow you to make any withdrawals during their 12-month life, or penalise you heavily for withdrawing your cash or missing payments. Therefore, please drip-feed only money you can spare into these high-paying accounts.
More on savings:
Encash: a new rival for Zopa, RateSetter and Funding Circle
The best Cash ISAs for the new tax year 2012/13
What to do if you've missed the ISA deadline
Most Recent
Comments
-
The HSBC Account... Do you have to pay a monthly charge ? Try Bank Of Cyprus for regular good savings deals or a Santander 123 card which although you pay £2 per month for it ; if you are the main food shopper and spend regulary on petrol you are soon quids in if you pay the balance off every month and possibly open a Halifax current account to store your money in , as if you pay £1k into it each month you get £5 reward money. It is a matter of juggling but if you add it up it is worth spending time doing ... Where else can you get something for nothing just by doing annual set ups on various accounts .Advice buying a small diary or cheap calendar to note dates perhaps reminding a couple of weeks in advance.
REPORT This comment has been reported. -
This may be a hassle to some, but if you switch your current account to first direct, you also get £100 for moving. When they say switching, that's simply £1500 per month, plus 2 direct debits. So if you have multiple sources of income, you can keep your main bank account but only switch across some of your income (and some of your direct debits. You have to pay in the regular savings monthly amount from your first direct account anyway, so some of the £1500 would go from that anyway. So in total, including the £100, your actual interest is £193 approx.
REPORT This comment has been reported. -
Nearly all accounts now are just a nuisance with you having to change each year as they drop from their "chart busting" advertising hype rates to a pittance somewhere in the region of 0.5%. For most of us we have busy lives and haven't got time to keep chopping and changing - THAT'S WHAT THE BANKS RELY ON AND WHY THEY WORK AS THEY DO. It's a no-brainer. Keep some in a good account for bills and a rainy day but have fun spending the rest....there's no pockets in a shroud. I've saved all my life and I would prefer not to have my relatives give away my estate at 40% to the tax man. Of course if they are going to start taxing charities then it will put people off donating so you are still better off spending the money (take some presents to your local hospice instead of donating it to the tax man). Changing the subject slightly from banks but it still has to do with savings, tax etc. The government are now going to introduce strict "Green" extra payments via Cavity Wall Insulation, Loft Insulation etc on any new extensions or consevatories built. Some years ago no tax at all was charged on home extensions (the Government wanted to encourage people to buy their own homes and keep them looking good). The VAT on extensions was brought in and gradually crept up and up until it is now at 20% (one-fifth of an extension that costs say £100,000 is £20,000). Now home owners are being forced to insulate their homes at what will be an extra burden. The result is that only the very rich will be able to afford this extra charge and so extensions will not get built. How do I know....well I for one was considering having an extension on my home but I will not now bother. I will just alter what I have so that it is more livable (change internal walls) and forget the extras and spend my money elsewhere. This will mean that a group of builders, electricians, carpenters, painters and decorators etc will not get employed. This government (and these "Green" actions are probably a sop to the Liberal-Democrates, although I hate what George Osborne did to Pensioners in his last budget - and I hated the last Labour Government as well - time for a change - vote UKip or an alternate party if you don;t want to vote for Ukip) seems hell-bent on doing everything it can to ensure that people remain unemployed. All of this will completely stunt any growth as is being born out in the latest figures. They need to butt out...for a Conservative Government they are showing that we still have a nanny state. Oh and by the way, my house will still look a bit of a mess....a great advert for Britain in this Jubilee and Olympic year to show the world what a poor, scruffy nation we are now forced to become but I can't afford any more....I'm a widowed pensioner trying to pay ever increasing bills but had saved enough to do a modest extension which would have helped me when I am older (would have saved the country some money too as it would mean I could keep my home for longer as alterations could be made to save on hospital/nursing home costs). I have worked and saved all my life and I am ashamed at what GREAT ? BRITAIN has now become. It's a pity because I was always very proud to be British but now......?
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
24 April 2012