Regular savings cash ISAs

What you need to know about regular savings ISAs: Benefits, limits and restrictions

Regular savings cash ISAs can help you build up a savings pot as they ask you to make a small deposit into the account each month. In return, you’ll earn tax-free interest on your savings.

Providers typically limit the amount you can save into these ISAs each month, which makes them particularly suitable for those who take a “little and often” approach to saving. And, because you’re restricted in how much you can save each year, it’s easy to ensure you don’t deposit more than your annual ISA allowance.

Just bear in mind that you may be required to make a set number of payments each year, and can be penalised if you miss a monthly deposit. This could be a loss of interest penalty, but in some cases could result in closure of the account.

Withdrawals may also be restricted and there can be opening restrictions as well (some accounts are only available to locals, for example), and you may be limited in how you can open and manage the account.

How is interest calculated on a regular savings cash ISA?

It’s important to note that you may earn less than you’re expecting on a regular savings ISA because you’re drip-feeding money into the account on a monthly basis, rather than saving a lump sum all at once. Typically, the amount of interest you’ll actually receive will be around half of the headline rate.

For example, let’s say you’ve chosen an account that pays 4% interest over the year and are looking to save £500 a month, or £6,000 in total. In the first month you’ll earn 4% on £500, in the second month you’ll earn it on £1,000 and so on. It’s only in the final month that you’ll earn 4% on the full £6,000.

This means you would earn approximately £131 in interest in one year. By contrast, if you deposit a £6,000 lump sum into an account paying 4%, you would earn around £240 in interest over one year.

Our monthly savings calculator can help you work out how much your money could be worth after a certain period.

Regular saver ISA or regular savings account?

While regular saver ISAs are a relatively niche product with not many accounts to choose from, standard regular savings accounts are more common. Both operate in the same way, as they typically require you to make a deposit each month to gradually build up your savings.

Because there are many more regular savings accounts to choose from, you may be more likely to find an account that best meets your requirements. Moreover, regular savings accounts can pay some of the most competitive rates on the market, with the best accounts likely to offer a much bigger return than the leading regular savings ISAs.

However, the key advantage of a regular savings ISA is its tax-free status, with returns always free from tax regardless of how much you have saved. The Personal Savings Allowance (PSA) allows you to earn a certain amount of interest on your savings tax-free (the limit depends on your taxpayer status) but, if you think you could go over this limit, a regular savings ISA (or other type of ISA) is worth considering.

The tax benefits of ISAs depend on your personal circumstances and may change in the future.

How do I open a regular savings ISA?

Choosing the right account

To help you choose the right account, make sure you look at:

• the interest rate
• the monthly deposit requirements
• whether you can access your money or not
• how it can be managed as this affects how easy it is to use day-to-day
• the eligibility criteria.

Eligibility requirements

To be eligible for a regular savings ISA, or any other cash ISAs, you need to be a UK resident over the age of 18. Members of the armed forces or Crown servants who aren’t UK residents can also open an ISA, as can their spouse or civil partner.

However, some providers will have additional requirements to consider, so if you want to find out more about an account’s individual opening criteria, select ‘view further details’ next to each listing on the chart above.

Required information

When applying, you’ll need to provide personal details such as your name, address and National Insurance number. You should also make sure you have any documents that can verify your identity as providers may request this.

As regular savings ISAs usually require a minimum deposit each month, the provider could also ask for bank details for the account you wish to pay from. To avoid being caught out, it’s best to check what’s needed ahead of time.

Application process

The application process varies between accounts, including the method in which the account can be opened.

You can check to see an account's opening options to the right of each listing on the chart above.

No matter how the account can be opened, make sure to review each step of the process carefully to ensure there are no mistakes in your application. To help with this, each listing also displays any opening criteria and additional information to help you understand what is required.

Set up Direct Debits

When opening a regular savings ISA, some providers may suggest setting up a Direct Debit to automatically pay your deposit each month. While this can take away the stress of remembering to make a payment each month, it may be more difficult to change the amount you wish to pay later down the line.

Most accounts will allow you to set up a Direct Debit anytime, but it’s best to check with the provider.

Remember you can only save a combined £20,000 each year across all your ISAs as part of your annual ISA allowance.

If you already have one, or multiple ISAs, make sure you know how much of your allowance you have left in the current tax-year before committing to a new account.

Is there a minimum amount I need to open a regular savings ISA?

You’ll typically need a minimum deposit in order to open a regular savings ISA, usually ranging between £1 and £25. Keep in mind this initial investment amount tends to be the same as the minimum monthly deposit requirement.

How soon after opening a regular savings ISA can I pay into it?

This varies. Some accounts may allow you to make a deposit right away, while others could require you to set a specific date for your monthly payments.

How much can I save in a regular savings ISA?

While you’ll be limited on how much you can put away each month, the overall amount you can save in a regular savings ISA is only restricted by your ISA allowance unless stated otherwise by the provider.

Do I need to make a monthly payment?

Yes, a regular savings ISA requires a minimum deposit each month. While this can make it easy to build up your savings habits, make sure you can afford to set aside the minimum amount each month to avoid any potential penalties.

What happens if I miss a monthly deposit?

Some providers may allow you to miss a payment. However, you won’t typically be able to make a larger deposit the following month to make up for the missed payment.

Note that some providers may penalise you for not paying into the account, or for failing to meet the minimum monthly requirement. This could see you earning a smaller rate on your balance or could even cause account closure, or your balance being transferred to a different account type.

Can I withdraw money from my regular savings ISA at any time?

Regular saver ISAs typically allow you to access your savings, although providers may set their own individual limits on the number of penalty-free withdrawals you can make.

This penalty could be a loss of interest but can sometimes lead to account closure or your funds being transferred to another account type.

Alternative types of ISA to consider 

Not sure if a regular saver ISA is right for you? Consider these options instead.

Easy access cash ISA

Easy access cash ISAs can offer a lot more flexibility than a regular savings version, letting you add as much as you want to your pot and most allowing restriction-free withdrawals as well (but make sure to check the terms and conditions of your chosen account, as some providers limit the number of withdrawals that are allowed each year).

Yet the downside is that there’s no incentive to save, which means it can be easier to get out of the habit of adding to your savings each month. This means it’s important to consider the options carefully, and remember, there’s nothing to stop you from getting both kinds of account to maximise your savings potential.

Fixed rate ISAs

Even if you don’t have a large lump sum to invest, fixed rate ISAs can still be a good alternative for growing your savings. While not offering the same flexibility as an easy access ISA, these accounts offer guaranteed returns in exchange for locking your money away for a specified term (typically ranging from one to five years).

While this can protect your pot against falling interest rates it also means you won’t benefit should they rise. What’s more, as further contributions are largely restricted, fixed ISAs are less suitable if you plan to regularly save, and usually have penalties when trying to withdraw funds on short notice.

Stocks and shares ISA

If you’re seeking higher returns than can be achieved with a cash savings account, you may like to consider a stocks and shares ISA instead. These offer the potential for far greater gains, yet they also come with a lot more risk, and you may end up with less than you put in. But if you’re comfortable with that, you could consider setting up a monthly direct debit to invest in a stocks and shares ISA, which still lets you save regularly with the chance to secure a larger pot at the end – and of course, all returns will still be tax-free. 

Alternatively, to get a wider view of the best deals out there, make sure to check out our weekly update of the best ISA rates available.