A new savings account offering an incredible return on your money has been launched. But is it too good to be true?
Savers have been turned off by rubbish rates of interest on their cash over the past couple of years, but a new account offering an incredible 8% interest may just warm their hearts. But is there a catch to such a tempting offer?
The new account comes from First Direct, a bank that has many fans among both the readers and staff of lovemoney.com on account of its peerless customer service. And its new regular saver is sure to win the bank even more friends.
How a regular saver works
Quite simply, a regular saver is an account for those of us that don’t have a huge stack of savings already, but want to get into the habit. Each month you will make a regular payment to the account - say £50 - so that when you get to the end of the year-long term, you’ll have a decent wad of cash to do with as you will.
In return for this, you can generally expect a pretty decent rate of interest from your bank, which will be paid on your savings at the end of the year.
The First Direct regular saver
This is very much the case with the First Direct regular saver, as it offers an almighty rate of interest at 8%.
You can choose how much you want to set aside each month, from £25 to £300, up to an annual maximum of £3,600. So if you manage to set aside £300 each month over the 12 months, at the end of the year you’ll be looking at gross interest of £156 – certainly not a sum to be sniffed at!
How does it compare?
8% sounds like a pretty significant return on your savings, but how does the First Direct regular saver compare to its rivals in the regular saver market?
Below I’ve put together a round-up of the top 5 regular savers in the market today.
|
Product |
Interest rate (AER) |
Minimum/maximum monthly payments |
Any other information? |
|
8% |
£25/£250 |
Must hold Premier, Advance, Passport or Graduate Advance account |
|
|
8% |
£25/£300 |
Must hold 1st Account |
|
|
5% |
£1/£250 |
Must have dependent children aged 16 or under, or 18 if in full-time education) |
|
|
5% |
£25/£250 |
Must hold Lloyds TSB current account |
|
|
4% |
£20/£500 |
|
As you can see, in order to secure a decent rate, you will generally need to jump through a few hoops. However, it’s clear that the First Direct regular saver is a market-leading option.
The catch
Inflation is the enemy when it comes to your savings because it attacks real returns, and reduces the purchasing power of your cash.
Yep, you guessed it. Inevitably there is a catch involved with the First Direct regular saver, in order to take advantage of its massive interest rate. It’s not available to everyone.
No, in order to access the account, you’ll need to be an existing customer, with the bank’s 1st Account current account. On the plus side, this is a tremendous current account to make use of, winning countless awards for its customer service, and offering a £100 bonus just for signing up.
Even better, should you not be happy within the first 12 months of opening the account, First Direct will even give you another £100 and help you find an alternative bank! It really is The UK’s favourite bank account.
However, this current account is certainly not for everyone. It doesn’t pay any interest at all on your cash, so if you are the sort of person with a decent stack of money in your current account generally, you might be better off going with the Santander Preferred In Credit Account, paying 5% on balances up to £2,500, or the Lloyds TSB Classic with Vantage, paying 4% on sums between £5,000 and £7,000.
In addition, you’ll need to pay in £1,500 each month to qualify for the 1st Account, which may be a little steep.
Getting your hands on your cash
What’s more, the First Direct regular saver does not allow any partial withdrawals.
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Should you need to access your cash, the account will be closed and your savings will be paid directly into your 1st Account for you to access. So while it’s a great account for getting you into the savings habit, it’s really important not to overstretch yourself in terms of how much you are putting aside each month. Only save what you can realistically afford to do without until the end of the twelve months.
It’s not for everyone
Overall, I think the First Direct regular saver is a great account for those people who are trying to get into the savings habit, and want to build up a little nest egg.
However, given the sums involved, those serious savers who already have a decent stash of cash set aside will probably want to give it a miss. Instead, they should take a look at the New market-leading easy access savings account.
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