Regular savings accounts explained
If you’re thinking of opening a regular savings account, read this guide to find out everything you need to know. Latest Deals breaks down the details of these accounts, and explains how to find the best regular savings account for you. We discuss their pros and cons, and answer any questions you may have.
What is a regular savings account?
A regular savings account, or a regular saver account, is one type of savings account.
With a regular savings account, rather than depositing a lump sum of money when you open the account, you pay into the account monthly. Regular savers typically run for one year and you’ll agree with the bank a set amount that you’ll pay in every month. Often these accounts come with better interest rates. You can read more about interest rates here.
A regular savings account could be a good option for you if you don’t have a large amount ready to deposit, but you do want to start putting money away for the future. A regular saver is a good way of getting in the habit of saving, and these accounts typically offer better interest rates than current accounts and some other types of savings accounts.
Is a regular savings account right for you?
There are various types of savings accounts, and it’s crucial that you choose the best fit for you.
A regular savings account could be the right option for you if you don’t have a lot of money ready to save, so don’t want to save it in a fixed rate bond, for example.
Or, you may want to get in the habit of saving, and a regular savings account rewards you for putting money away every month with competitive interest rates. You’ll likely get a better interest than you would with an easy access savings account. However, regular savers are not as flexible and in some cases you won’t be able to make any withdrawals.
There’s no ‘best’ savings account. But, there is one that’s best for your financial situation and goals, so it’s important to make sure you’re choosing the right option for you.
Read our guide on the different savings account types here.
5 Things you need to know about regular savings accounts
The pros and cons of regular savings accounts
There are negatives and positives that come with all types of savings accounts. You need to weigh up these pros and cons and compare them with your circumstances and what you’re looking for in a savings account to find the right fit for you.
|You can earn interest on your |
money even if you don’t have a
lump sum to save
|You must deposit a minimum |
amount each month
|Often you can get a better interest |
rate than with a current account or
other savings accounts
|There may be caps on how much |
you can pay in each month, to
limit the amount of interest you
|You can get in the habit of putting |
money away each month
|There may be limits to how|
often you can withdraw
money, or if you can at all
IMPORTANT NOTE: It’s important to look at the terms of the account carefully. There will likely be limits on how often you can withdraw money, or if you can’t at all. So, make sure you have a separate emergency fund for when you need cash quickly.
Can I get a high interest regular savings account?
With a regular savings account, you’ll likely get a higher interest rate than with other savings accounts, for example easy access accounts.
There is a reason for this though, and regular savers often come with rigid terms and conditions. These include minimum monthly payments, caps on how much you can deposit each month, and limits on withdrawals.
It’s important to bear in mind that with all savings accounts, you’ll only earn interest on the total amount in the savings account. So, you need to understand how much money you’ll be earning as interest on your savings.
For example, if you’ve saved £2,400 over a year in a regular saver at 10% interest, you may expect a return of £240.
This is not the case however, as you didn’t have £2,400 in the account for the entirety of the year. It took you the course of the year to build up your savings to £2,400.
You’ll earn the headline interest rate on whatever is in your account for the first month, and then for every month after, the interest rate will reduce by 1/12th (if the account term is one year). So, for month two you’ll earn 11/12 of the interest rate, and in the last month, you’ll earn just 1/12 of it.
This means that the amount of interest you’ll earn on your money will depend on how much you pay in each month, the interest rate on the account, and whether the interest rate is fixed or variable.
You can use a regular savings account interest calculator to get an estimate of the interest you could earn on your money.
Which is the best regular savings account?
Regular savings accounts are offered by most banks and building societies. Different providers and accounts will come with different terms, and usually the more rigid the terms, the better the interest rate will be.
With a higher interest rate, you’ll make more money on your savings, so it’s important to find an account with the best rate possible, whilst making sure the terms are suitable for your circumstances.
Interest rates for regular saver accounts can range from 1% to 5% (this will vary depending on the provider, the account type, and the Bank of England base rate), but it’s important to look at the terms of the account as well as the rate.
Compare regular savings accounts
Before committing to a regular saver account, you should compare options from different providers.
Some of the terms you should consider and weigh up are:
- Can you withdraw money?
- How often can you withdraw money?
- What’s the minimum monthly deposit amount?
- What’s the maximum monthly deposit amount?
- Is the interest rate fixed or variable?
- Does the account come with additional fees?
- What happens if you miss a deposit?
- Is the provider protected by the Financial Services Compensation Scheme?
Is your money safe in a regular savings account?
Before opening an account, make sure that the provider you’re using is covered by the Financial Services Compensation Scheme. If they are, it means your money will be covered up to £85,000 if the institution were to go bust.
If your savings are more than £85,000, you can split it amongst different savings providers, as you’ll be protected up to that amount per provider. So, all of your money will be protected.