Ruth Jackson-Kirby
Amanda Derengowski
A regular savings account – or monthly saver – can help you develop a savings habit and start to build a nest egg by rewarding you for setting aside some cash every month.
What is a regular savings account?
Regular savings accounts are designed for people wanting to save money every month to build up a savings pot. Because of this you can’t deposit a large lump sum. Instead you add a small amount each month – usually between £10 and £300, but you may see some variations on this.
How much interest will I earn?
In return for monthly savings, regular savings accounts offer a temptingly higher interest rate than standard savings accounts, that is fixed for at least the first 12 months. For example, you may find a regular savings account offering twice the rate or more of a standard savings account.
However it is important to note that your actual return on your total savings will not be that high. The actual return on a regular savings account is usually about half the headline interest rate because the interest is calculated periodically based on the growing balance and not the final sum you will have saved.
Let’s imagine you open a regular savings account paying 3% interest. If you pay in £100 a month, you would have £1,200 plus £19.50 interest after 12 months. That works out as an actual return of 1.6%. It’s not a full 3% because the full £1,200 was not in the account for the entire year.
What are the rules on regular savings accounts?
The rules around regular savings accounts are quite strict. Break them and you could see your interest rate plummet.
- Keep things regular. Some banks will let you skip one or two deposits a year, but most will penalise you with a reduced interest rate if you miss your monthly payment. You may also have to save the same amount into your account each month.
- Know your limits. Regular savings accounts usually have a limit on how much you can pay in each month. Go over the limit and you may have interest docked from your account.
- Stay hands-off. Most regular savings accounts don’t allow withdrawals. Access your money early and either your interest rate will drop or some of your interest will be docked. Some accounts do allow one or two withdrawals.
- Plan your next move. Regular savings accounts typically last for 12 months. After that your bank will move your money into a low-interest account.
Are regular savings accounts worth it?
If you want to build a savings pot or are saving towards a short-term goal such as a holiday, a regular savings account can really help. The framework of a regular savings account will also help you develop a strong savings habit.
However, if you don’t think you’ll be able to save every month, you think you might want to access your cash before the 12 months is up, or how much you can afford to save will fluctuate each month, an instant access savings account will offer more flexibility.
» MORE: Types of savings accounts
How to get a regular saver
Most regular savings accounts are linked to current accounts, meaning you can only open one if you already have or open a bank account with that bank or building society. Some accounts, however, are open to all and you can usually apply online.
Can you have more than one regular saver?
The attractive rates on regular savers means banks will usually only allow customers to open one regular saver account at a time. However, when one regular saver comes to an end you can usually start a new one.
There’s nothing to stop you opening regular savers with different providers, if you can afford to save more; however, it may mean you need to open more current accounts to get the best rates.
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