Best regular savings accounts

What is a regular savings account?

A regular savings account, sometimes called a monthly saver, is a type of savings account that requires you to make a deposit on a regular basis, typically every month.

They can pay a higher rate than many other types of savings accounts but, in return, they usually come with stricter terms and conditions. There will also normally be a limit on the total amount you can hold in the account.

Many regular savings accounts are only available to savers who have a current account (or other account) with the provider, or to those who live in certain postcodes. However, there are some that are more widely available.

How do regular savings accounts work?

Every regular savings account has different terms and requirements but, as a rule, they will all set a minimum and maximum sum you need to deposit each month. The minimum could start from as little as £1 (although some providers may not even require a minimum monthly deposit), while the maximum deposit could go up to several hundred pounds.

You could set up a standing order to make a single payment each month, but other providers may allow you to pay in a different amount each month or make multiple payments, up to the monthly limit.

If you don’t pay in the maximum amount each month, some accounts may allow you to “catch up” by depositing more in later months (as long as you don’t exceed the overall balance limit). However, not all providers allow this.

Some providers may allow you to miss a monthly payment but others may apply a penalty if you don’t pay in the required sum.

Many regular savings accounts have a set term, often 12 months, after which the account may revert to a standard account.

While some regular savings accounts may allow withdrawals during the term, some accounts may apply restrictions and won't allow savers to access their money for one year, for example.

How much interest can I earn?

The interest you can earn on a regular savings account will depend on the account and provider you choose, as well as the amount you deposit.

Interest rates on regular savings accounts are typically higher than on other savings accounts but, because there are limits to the amount you can deposit each month, there is a cap on the total amount of interest you can earn.

As a result, you may not earn as much interest as you expect based on the headline rate.

For example, if you deposit £100 into a regular savings account each month for one year, you will only earn interest on £100 in the first month, £200 in the second month and so on. As a result, you would only earn interest on the full £1,200 on the final month.

This means that, if the interest rate on this account was 6.00% AER, you would earn approximately £39 in interest over the year.

By contrast, if you deposit £1,200 in another savings account as a lump sum, you will earn interest on the full amount from day one.

If this account also paid 6.00% AER, you would earn around £72 in interest over one year. Even if the account paid a lower 4.00% AER, you would still earn £48 in interest, more than the regular saver example above.

As a result, if you have a significant lump sum to deposit, you may earn more interest overall by depositing it into a fixed bond or other savings account, even if it pays a lower rate than a regular saver. Read more on how interest payments work on regular savings accounts.

Is a regular savings account worth it?

Regular savings accounts have a number of benefits and may be worth considering if:

• You want to receive a higher rate of interest
• You want to develop and maintain a regular savings habit
• You’re saving towards a specific short-term goal, such as a holiday or special event
• You can afford to meet the minimum payments required and are comfortable with the terms of the account
• You won’t need immediate access to your money (although some regular savers may allow withdrawals).

However, these accounts have some disadvantages and may not be suitable for you if:

• You want the flexibility of adding as much or as little to your savings as often as you choose
• You want to be able to access your savings quickly, to cover an emergency expense, for example
• You have a lump sum of money that you want to deposit into savings straightaway
• You’re not sure you can make the minimum monthly payments into the account.

Because regular savings accounts often come with specific terms and conditions, it’s important to check these before opening an account to see if it’s right for you.

Alternatives to regular savings accounts

If a regular saver isn’t for you, there are other types of savings account you could consider, such as:

• Easy access accounts: These offer more flexibility and allow you to add and withdraw from your savings as you need.
• Notice accounts: These are similar to easy access accounts, except you need to wait a certain number of days before you receive the money you’ve withdrawn.
• Fixed rate bonds: These may be more suitable if you have a lump sum that you want to deposit immediately.
• Individual Savings Accounts (ISAs): To avoid paying tax on your savings interest, you can deposit up to £20,000 in an ISA per tax-year. There are a range of ISAs available, including some regular saving ISAs.

Bear in mind that you can have a combination of savings accounts, so you could have a regular savings account alongside an easy access savings account, for example.

This could also help you to maximise the interest on your savings as you could deposit a lump sum into an easy access account and transfer money into a higher-paying regular savings account each month.