Beginner's guide to: Regular savings accounts

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The Independent Online

What are regular savings accounts?

If you're looking to maximise your savings returns in this low interest-rate environment, then regular savings accounts are

worth considering. They are designed to encourage people to get into the savings habit, so money must be paid into the account every month. The interest rate is fixed over a set term – usually 12 months – and you cannot normally access your money during that time.

However, the rates on regular saver accounts tend to be significantly higher than those on the leading easy access deals, making them particularly attractive when compared to the 0.5 per cent base rate. At the moment you can earn up 6 per cent or 7 per cent with a regular savings account (compared with around 2.5 per cent to 3 per cent on the leading easy access deals).

Why are rates on regular savings accounts so much higher?

Providers can afford to pay a higher rate on regular savings accounts because the amount you can pay in is limited. The maximum you can pay in tends to be capped at £250 or £300.

Is there anything to watch out for?

Regular savings accounts tend to have quite strict terms and conditions so you need to check the detail before you apply. For example, withdrawals aren't usually permitted during the fixed term; the amount you deposit is capped, but many accounts also don't permit you to alter the amount you pay in so you must deposit the same amount each month.

Another common tactic is to link regular savings deals with other products. For example, Alliance & Leicester's Premier Regular Savings account, which is paying 7 per cent, is only available to new Premier Current Account customers, while Abbey has a Regular Saver paying 6 per cent, although customers must also invest an equal amount in one of Abbey's investment or pension products.

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