The best savings accounts for regular savers

A raft of new regular savings accounts have recently flooded the market. Szu Ping Chan reveals her pick of best accounts.

I've always liked regular savers. To me, they are the unsung hero of the savings world, and provide a good way to get you stashing that cash.

With regular savers, you put away a small(ish) amount each month, usually between £25 and £250 over a one year term. In return, your bank gives you an interest rate that is much higher than a standard savings account would offer.

When regular savers first launched, their headline-grabbing rates of 7 - 8% certainly got many heads turning.

However, on maturity, many who had rushed out to open an account complained they were getting nowhere near the interest rates they were promised.

For example, someone who had invested the full £3,000 over a year in an account paying 10% (£250 a month) might mistakenly expect a gross return of £300.

But you have to remember that in order to gain £300 interest, the £3,000 would need to be invested from the start of the year.

As money is drip-fed into the account over 12 months, you only have the full £3,000 in the final month, and the average balance across the year is £1,500, not £3,000.

Therefore a return about £150 is more realistic.

But the problem with regular savers is they are no longer the simple products they were when they first launched, and what started off a simple product now comes in all shapes and sizes.

Here are my picks:

The new kid on the block

NatWest is the latest provider to jump on the regular savings bandwagon, and offers a fixed rate of 5% AER for one year on its Regular Saver account.

You can pay in anything from £25 to £250 per month, and don't need to set up a standing order to make a monthly deposit.

This offers you the flexibility to deposit what you like, when you like it. However, miss a payment, and your interest rate will drop to 0.2% AER.

You'll also need to head down to a branch to apply, and have either a current or savings account with the bank to qualify.

Both NatWest and parent bank RBS offer the Regular Saver, but you can only open one account, even if you have current accounts with both.

The one that's tied to your current account

Santander has recently made another splash in the banking world by launching two new regular savers, which both offer 6% AER.

The Abbey Super Fixed Rate Monthly Saver is exclusively available to those switching to either the new Reward Account or Preferred In Credit Rate current account, while Alliance & Leicester's Premier Regular Saver is available to those who switch to its Premier Direct and Premier 50 current accounts.

You have to open the accounts at the same time, and can't alter your monthly payments once you've decided how much you want to pay in each month. Abbey customers must decide a monthly payment from £20 - £250 per month, while A&L customers can deposit amounts from £10 - £250.

No withdrawals are permitted during the year-long term.

The one you can make penalty-free withdrawals from

One of my favourite regular savers is the Monthly Saver account from Lloyds TSB, which pays a fixed rate of 5% AER for one year.

Unlike many of its rivals, you can dip into the account if you need access to your cash, and can also miss payments without loss of interest.

You can open the account over the phone, which is also handy for people who don't have time to go into a branch.

The only downside is you'll need to have a bank account with Lloyds to qualify. The minimum monthly deposit is £25, and the maximum £250.

The one for richer people

If you have more than £250 you want to stash away, the Halifax Regular saver lets you put in up to £500 per month into the account (minimum £25), and pays 5% AER.

You don't need to hold a Halifax current account to apply, however, the account has several restrictions you need to watch out for.

If you miss A payment, Halifax will close your account, and pay you just 0.1% interest on any money you saved up until that point.

You also can't make any withdrawals from the account during the term.

The one with no extra ties

If you don't fancy opening up a separate bank account to take advantage of the special rates, and want flexibility, Barclays offers a rate of 4.25% AER on its Monthly Savings account on deposits from £20 to £250 per month.

You can make withdrawals from the account, but in any month you do so, you'll earn a lower rate of 3.03% AER. Interest is also paid monthly, so you can see how your money grows each month.

The one where you have to pay a fee

If you're a HSBC customer, you can get a juicy rate of 8% AER on your savings. However, in order to qualify for the 8% account, you'll need to HSBC Premier, HSBC Plus, Graduate Plus or HSBC Passport customer.

All these accounts charge a monthly fee, so unless you have one of these accounts already, it's not worth opening an account just to take advantage of the 8% rate.

One final thing to remember is that once your regular saver has matured, you'll receive a pretty dismal rate on your cash.

For example, the Lloyds TSB Monthly Saver converts to an Easy Saver on maturity, which currently pays 0.1% AER.

Barclays customers will receive just 0.5% AER after one year, while high flyers in the Halifax will get just 0.1% AER when their account converts to a variable rate Web Saver.

So if you take one of these accounts out, be sure to transfer your savings into a high interest savings account as soon as your account matures. After all, your money has worked hard to earn that interest, and there's no reason why that should stop after a year.

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