Regular savers often offer market leading rates but they usually come with a catch - we explain how to make the most out of these sometimes complicated accounts.
Regular Savers accounts are easily recognisable from their attention-grabbing interest rates. They also have a distinctive number of terms and conditions. To make the most out of your money it is vital to read this small print.
The basic rules surrounding the use of a Regular Savers account require you to make monthly deposits between a specified minimum and maximum amount. The high interest rate, sometimes as high as 12% usually lasts for a year and the number of withdrawals you can make is limited, if granted at all. Any breach of the restrictions, including missing a monthly deposit, can result in the interest rate being slashed or even the account being closed.
Despite the rigidity of the format, regular savers accounts can be a great way to maximise the interest you earn on your money if you are prepared to forgo the flexibility of other savings accounts and play by the rules.
But before you go any further do you have an ISA? Regular Savers accounts are taxed and so your first move should be to use your annual tax-free ISA allowance. If you still have money to save now is the time to turn your attention to Regular Savers.
The key to making the most out of your account is a technique known as drip-feeding. Ideally you should already have the maximum amount that can be deposited over the life of the account in a normal savings account with a competitive interest rate. You then transfer the maximum allowed amount into the regular saver from your normal savings account ensuring that the rest of your money continues to earn a relatively high rate of interest whilst it “waits” to be deposited. Simply transferring from your salary or current account means you’re not working your money as hard as you could be.
This technique is complicated by the fact that some banks will restrict the opening of their Regular Savers to existing customers. So whilst you might want the attractive rate of one bank’s Regular Savers account you have a current account with someone else. In this situation you have to weigh up the costs and benefits of changing banks. It may be that the lure of a high interest rate is outweighed by being tied to an un-competitive current account. And remember the drip-feed trick works best with a top normal savings account.
The second trick of the Regular Saver is for those who don’t have the maximum allowable sum in advance. Be careful not to make deposits larger than you can afford in the first months because, as mentioned, some providers will cut rates or even close accounts if a monthly payment is missed. It is worth making some initial calculations to determine the maximum you can afford to pay in the first months whilst ensuring you can make the minimum payments thereafter. Of course aim to deposit the your maximum monthly amounts in the early months so as to earn an optimum amount of interest but remember stretching your money too far could back-fire.
A way to overcome a couple of restrictions, that’s what. Some providers will increase the maximum allowable monthly deposit amounts for Joint Regular Savers accounts. So whilst it may be only yourself depositing, adding your partner’s name to the account will allow you to save more. Another option is to open an account in your child's name as savings here will be tax-free. A child can have several accounts trusted to them in this way so you and your partner may want to consider opening accounts separately should you have the sufficient funds.
Whilst a number common restrictions on Regular Savers accounts have been mentioned here the specifics with vary from bank to bank. What works best for you will depend on a number of factors and so the key is to shop around.
Finally, think ahead. Be prepared to move your savings elsewhere when the initial high interest rate offer expires.
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