Regular Saver Accounts
A Regular Saver account is for those in a position to put money away on a regular basis, hence the name.
Regular Saver accounts offer very good interest rates, but often impose restrictions such as limiting the amount of the withdrawals you can make and forcing you to make a deposit every month.
The interest rates are high, primarily as an incentive to get you to save with a specific bank.
Often, after an introductory period, your money is transferred to a basic saving account at which time it is often beneficial to look elsewhere.
When to use Regular Saver accounts
If considered on pure interest rates alone, a Regular Saver account is hard to beat.
It is important to note however that the interest is taxable and so basic rate taxpayers will lose 20% and higher earners 40%.
For many, this means putting your money into a tax free ISA will be better first, but once full, if you have additional savings a Regular Saver account is the next best consideration.
How the interest works on a Regular Saver account
As the money is being saved monthly rather than annually, it is important to note that the interest received will generally be around half of the interest rate advertised – see the example below:
- John deposits £3000 over the course of a year in an account advertising an interest rate of 10%, but earns only £160 (5%)
- This is because the deposits we’re made in instalments of £250 per month, and so after month 1 he was only receiving interest on £250, after month 6, £1500 (plus interest earned) etc. You only receive interest on the money actually in the account at that specific time.
- As a rough guide, it is best to say that over the course of the year, the average amount in the account was half the total, so £1500. 10% of that would be £150.
To maximise the earnings on your money however, you can use the ‘dripfeeding’ technique using a combination of ‘top savings accounts’ and a ‘regular saver’
Drip feeding into your Regular Saver account
If you have a large amount of money and wish to maximise its potential, it may be worth placing it all in a Savings Account and then, month by month, transferring it to a Regular Saver.
Although the Savings Account interest rate will be lower than that of the Regular Saver, it will still be gaining interest whilst it is waiting to be transferred. Not all banks allow this, so it is worth researching where will allow, and if necessary using a current account as an intermediary.