Earn 10% on your savings

One lender is offering an incredible return on its regular saver account. But is there a catch?

With bank base rate held at its record low of 0.5% for an extraordinary 22nd straight month, 2011 hasn’t brought much cheer with it for the nation’s savers, hoping for a decent return on their money.

Or has it? One lender has just announced one of its savings accounts will pay an incredible 10% interest!

The HSBC regular saver

HSBC has ramped up the return available from its regular saver to a frankly incredible 10% in the first year.

You can save between £25 and £250 each month, though if you don’t meet the maximum payment one month, you can top up your balance the next. So for example, if you only pay in £25 in month one, in the second month you can pay in as much as £475.

Should you manage to pay in the maximum amount each month (and finish with a balance of £3,000), then you can look forward to gross interest of a mighty £163, according to HSBC.

On the negative side, you won’t be able to make any withdrawals throughout the year - if you do, your cash will be moved to an alternative HSBC savings account, paying a far less attractive rate of interest.

It’s also not an account that is available to everyone – it's only available to HSBC Premier, HSBC Advance, HSBC Graduate (Advance) and HSBC Passport customers. If you hold one of the bank’s other bank accounts, you’ll only be able to get a return of 5% from the regular saver.

How it compares

Let’s take a look at how the HSBC account compares to its rivals in the regular saver market.

*Only available to holders of HSBC Premier, HSBC Advance, HSBC Graduate (Advance) and HSBC Passport accounts. Everyone else will receive a rate of 5%

So as you can see, HSBC and First Direct are miles ahead of their rivals when it comes to offering a great rate of interest, with most providers unwilling to go above 4%.

The pros of regular savers

Regular saver accounts are a very underrated form of savings account in my view, as they are an excellent way to get you into the habit of saving on a regular basis. Saving money is a habit, and it can be a tough one to get into – there’s always something tempting out there that you could be spending that money on, instead of putting it aside. Or you can fall into the trap that I myself have been guilty of – I’ll buy this now, and just save more next month. It rarely works out as planned though.

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What’s more, regular saver accounts offer far higher rates of interest on your money than other savings deals.

The negatives of regular savers

However, these regular savers are not much use if you’re a seasoned saver, or have a stack of cash already built up that needs a decent return.

As a result, while the headline rate of interest looks amazing, in reality the actual amount you'll earn may end up being somewhat disappointing.

They are also not so good if you want to build up a safety net that you may need to access at any time. The whole idea of a regular saver is that you are putting away money that you can do without, so that come the end of the year you get a better return on that cash. If you’re likely to need those savings at some point within the next 12 months, an alternative home is required.

The alternatives

So if a regular saver is not for you, where should your cash be going?

Tax-free savings

If you have a pot of savings in place, you really should be making the most of your ISA allowance. An ISA allows you to save up to £10,200 a year completely tax-free (though a maximum of £5,100 can be kept in cash). Have a read of Get the best cash ISA of the year and The top stocks & shares ISA for 2011 for a run-down of the various ISAs you should be considering.

Easy access savings

If you may need to access your cash at any time – perhaps you’re expecting a punishing bill or large expense, like a baby – then an easy access savings account is most likely your best bet.

Below are the top five easy access savings accounts available today.

 *Must be receiving Child Benefit to qualify for account.

**Rate drops to 2.50% if you're not a Halifax current account holder.

Bonds

It’s long been the case that the best way to get a decent rate of interest on your cash is to lock it away. With a bond, that’s exactly what happens – you wave goodbye to your cash for upwards of a year, and when you get it back you’ve got a nice chunk of interest on top to enjoy.

Sadly, the rates of interest on bonds at the moment are barely better than you get from easy access accounts, and with bank base rate only going to head north – meaning savings rates should increase as well – I’d be very wary of locking my money up for very long at all.

More: How to build a nest-egg for your children | Ditch your debt by February