Savers attracted by the high interest rates offered by banks on regular savings accounts could be disappointed, as returns may be lower than expected and many deals come with conditions attached.
These accounts offer super high interest rates of up to 7 percent – but the way the returns are calculated means many savers aren’t getting as much as they thought.
This is Money’s research shows that, in cash terms, only one mainstream savings deal offers savers a better annual return than the best easy-to-access account, which pays out less than half that nominal rate — 3.4 percent.
Choosing the second best regular savings account, which has an overall rate of 6.25 percent, would still leave the customer worse off.
Careful consideration: When it comes to the overall savings rate, bigger isn’t always better when it comes to the pounds that savers pocket at the end of the year
How do regular savers work?
Regular savings accounts, as the name suggests, encourage people to put aside a fixed amount every month. Interest is normally paid after one year.
The niche savings deals are in the spotlight for their sequential role above the savings rates of the big banks.
Banks have come under fire from MPs for failing to pass on the Bank of England’s key interest rate hikes to their easy access accounts – the most popular form of savings agreement in the country.
In response, the British bosses of Barclays, HSBC, NatWest Group and Lloyds Banking Group all argued that savers didn’t really want better, more easily accessible account rates.
Instead, bank executives argued, savers wanted to be encouraged to save with better mainstream savings deals.
How is the interest calculated for an ordinary saver?
There are several conditions attached to regular savings deals that can easily trip up unwary consumers.
The first is that the way interest rates are calculated on regular savings deals can trip up savers and mean they’re earning a lot less than they think.
Take the best regular saver, First Direct, as an example. This deal pays 7 per cent and saves you up to £3,600 a year.
Seven per cent of £3,600 is £252, but the First Direct deal doesn’t pay that amount. Instead, it only pays a maximum of £136.50 a year.
The reason is that you only earn a fraction of that nominal rate per month every time you top up the regular saver.
You will only receive the full 7 percent interest in the last month.
Banks must point this out in their terms and conditions, but many savers do not know it yet.
The deals are useful because they help encourage consumers’ saving habits. They have traditionally been aimed at groups that needed help saving for one big event a year – normally Christmas.
Most mainstream savers also limit how much money you can save, with the major banks currently setting limits between £150 and £400 per month.
Regular depositors usually don’t allow withdrawals – and may even close if you try to withdraw money. And saving regularly also means getting a checking account with the bank that offers it.
Slow and Steady: Regular savers encourage customers to deposit a similar amount into their account each month
Anna Bowes, founder of financial experts Savings Champion, said: ‘There are a lot of conditions attached to these accounts. Savers do have a responsibility to understand what they are signing up for, but that is sometimes not easy and not everyone has the ability to understand them in the same way.
‘The main rates on regular savings deals are often astonishing. I have no objection at all to regular savings accounts, because if you can save little and often, they can offer the best rates.
‘But to keep the math simple, someone who strikes a deal with a 7 per cent top rate and saves £100 a month wouldn’t earn £84 a year in interest. They then receive about half, because only one of those monthly deposits yields the full interest.’
Are regular savings rates better than easy access accounts?
At first glance, regular savings rates seem unbeatable, with many paying interest at 4 to 7 percent per annum.
But only one regular savings deal pays enough interest to exceed the possible return on the most accessible account.
To show this, we looked at how much a saver could earn by maxing out each of the top five savings deals, then compared that to the interest they could get by putting the same amount into the best easily accessible deal and nothing to do about it.
The best easy-to-access account, from Chip, pays 3.4 percent per annum, and we found that only First Direct’s Regular Saver is better when it comes to interest.
First directly
The leader with regular interest rates on savings is First Direct. The digital bank, owned by HSBC, has a regular savings account that pays 7 per cent a year up to £300 a month, or £3,600 over 12 months.
A saver putting in the maximum possible would earn £136.50 in interest with this regular saver, compared to £122.40 with the Chip easy access account.
A spokesperson for HSBC UK said: ‘We give customers access to a wide range of savings products that cover a variety of savers’ needs, some of which offer higher returns than the base rate, including our regular 5 per cent saver with HSBC and 7 per cent with FirstDirect.
“While our savings accounts are not tied to the base rate, we have raised interest rates on savings accounts eight times in the past year and the interest on each savings product has increased several times over that time, supporting customers to get off to a positive start. saving habit and saving for longer term goals.’
Lloyd’s
Lloyds’ largest regular saver is the Club Lloyds Monthly Saver, which pays 6.25 percent per annum. Savers who deposit up to £400 per month will earn £150 after 12 months.
However, someone putting the same total of £4,800 into the Chip easy access deal would earn £163.20.
The Club Lloyds Monthly Saver deal is only available to customers with a Club Lloyds checking account. This has a fee of £3 per month, but this is waived if you pay £1,500 per month or more into the current account – rising to £2,000 per month from 1 April.
NatWest/RBS
These sister banks both have an identical deal: the Digital Regular Saver. This pays 6.17 per cent interest on balances up to £5,000, and 0.65 per cent on anything above that.
The deal does not expire after a year, unlike many other regular savers, and customers can withdraw money at any time.
However, consumers can only save £150 a month or £1,800 a year in the deal.
That means the maximum amount a saver can earn in interest per year is £59.83.
Consumers could get a little more (£61.20) in the best deal for easy access.
A NatWest spokesperson said: ‘We’ve focused on helping our customers develop a saving habit and since 2020 we’ve helped 1.7 million customers save £100 or more for the first time.’
Halifax
The Halifax Regular Saver pays 4.5 per cent interest on up to £250 a month, or £3,000 a year. After that time, a saver who contributed the maximum would have earned £67.50 in interest.
Putting the same amount into the chip deal will save you £102.
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