A regular saver offers a cracking rate of interest on your savings. But there is a catch.
Some good news at last for savers! Inflation is officially falling, with the Consumer Prices Index dropping from 3.5% to 3% according to the Office for National Statistics.
According to moneyfacts, to beat the effects of inflation and retain the value of your money a basic-rate taxpayer needs to find a savings account paying 3.75% per annum, while a higher-rate taxpayer of 40% needs to find an account paying at least 4.99%.
Sadly the average no-notice savings account just can’t keep up and pays an average of 1.15%. Luckily there a few great fixed rate regular savers accounts around at the moment that could make your savings work.
Regular saving at 8.00%
The First Direct Regular Saver Account requires customers to save between £25 and £300 each month for a fixed term of 12 months in exchange for a market-leading rate of 8.00%.
[SPOTLIGHT]However, it is important to remember that this headline rate is before any tax is applied to the interest you earn and an account like this is not tax-free like an ISA.
8% turns into 6.4% for basic-rate taxpayers and 4.8% for higher-rate taxpayers.
So if you were to save the full £300 a month with First Direct for 12 months, you would receive an extra £156 gross in interest. But after 20% tax you'd only get £124.80, or with tax at 40%, you'd take away an added £93.60 from your investment. That said the amount earned back in just a year looks better than the majority of other savings accounts around at the moment.
Unfortunately, this deal is only available to First Direct 1st Account customers. That's not the worst thing in the world, given the account wins every customer service award going! For more on the 1st Account, check out First Direct comes top again for customer service
So where else can savers find cracking rates on a regular savings account?
Top regular savers
|
Provider |
Account |
Interest rate |
Min/max per month |
Notes |
|
First Direct |
Regular Saver Account |
8.00% |
£25/£300 |
You must have a First Direct 1st Account to apply No withdrawals |
|
HSBC |
Regular Saver |
8.00% |
£25/£250 |
Only available to HSBC Premier, HSBC Advance, HSBC Advance (Graduate) and HSBC Passport customers No withdrawals |
|
HSBC |
Regular Saver |
6.00% |
£25/£250 |
You must have a standard or graduate account with HSBC Withdrawals are not permitted |
|
Cheshire Building Society |
Platinum Monthly Saver Issue 3 |
5.00% |
£100/£500 |
Limited to one withdrawal but you will suffer a 4.00% loss of interest for remainder of term! A missed payment incurs a 4.00% loss of interest as well. |
|
West Brom Building Society |
Fixed Rate Regular Saver (Adult) |
4.10% |
£10/£250 |
No withdrawals allowed Missed payment reduces rate to 3.60% |
|
Saffron Building Society |
12 Month Fixed Rate Regular Saver (Issue 2) |
4.00% |
£10/£200 |
Unlimited withdrawals |
|
Norwich & Peterborough Building Society |
Regular Saver |
4.00% |
£1/£250 |
Rate includes 2.15% bonus for 12 months One withdrawal allowed but you would suffer a 1.5% loss of interest 1.5% loss of interest if you miss a payment |
What’s not to like?
Research carried out for First Direct highlights that only a quarter of UK adults take up a fixed rate regular savings account, which makes me wonder: what’s not to like?
Well for some the following restrictions are a bit of a turn off:
1. The interest you earn is not tax free. So for an account like the one with Cheshire Building Society the headline rate of 5.00% becomes 4.00% if you have to pay 20% tax or just 3.00% for a higher rate tax payer, diminishing the returns on your money.
2. In most cases you cannot access your savings in an emergency without being penalised. So if you suddenly need to repair your car or an unexpected bill turns up, you will be unable to access your savings without facing penalties on the rates, making them no better than an easy access account.
3. Once the initial period is up your account will be switched onto a lower rate of interest. So you will need to put a date in your diary to alert you about switching.
4. A big restriction some may not be too fond of is that there is a maximum to how much you can save. With such a great interest rate it is tempting to put everything you can spare into an account like this to earn the maximum returns. Regular savings accounts place a limit on how much you can deposit each month, so they are not a possible home for the savings you may have already accrued.
5. Regular savings accounts expect you to put in a minimum each month. This can be a problem if you forget to as you will be penalised by a drop in rate if you miss a payment.
A worthwhile investment
If you set aside a regular amount each month through an automated payment, don’t need constant access to your funds and are quick to move your savings on after the introductory period, a regular saver account could be very beneficial to your savings pot.
Although the top 8.00% rates are only available to First Direct or HSBC customers, the next best rate of 5.00% is not something you see every day.
More on savings:
The top fixed rate savings bonds