If you want to build up your savings one step at a time, then regular savings accounts could be the ideal choice. Here’s how to pick the best regular savings account to help your savings grow.
Saving a fixed sum on a monthly or weekly basis can be a great way to build up your savings gradually.
It’s made even easier as there are lots of regular saving accounts specifically designed to reward savers who make regular payments into their savings account.
What’s more, the best regular savings accounts offer interest rates that are significantly better than those available on even the top fixed term bonds so they can help boost your savings even further.
Here’s how to choose the best regular savings account for your circumstances.
What is a regular saving account?
A regular savings account is specifically designed to help you build your savings over time.
Most run over a fixed term – usually 12 months - and encourage you to save a certain amount each month without making any withdrawals for the duration.
However, the best regular saver accounts paying the highest rates of interest will often limit the amount of money you’re able to pay in each month. Despite this, they can be a profitable way to grow your savings over time.
Minimum & maximum payments
Most regular savers will impose a minimum and maximum limit on what you can pay into the account each month; these usually sit somewhere between £25 and £500 per month but this differs from account to account.
You need to stick within these thresholds to receive the advertised interest rate on the regular saver.
Fail to pay in the minimum amount or pay in more than the monthly maximum and you are likely to be penalised and lose interest.
As such you need to check the terms and conditions of any regular saver accounts you’re considering opening. Find the minimum and maximum thresholds, make sure that you are happy to stick within these, and check what would happen if you were to break the deposit terms.
The vast majority of regular savings accounts will require you to set up a standing order when you open the account so that you automatically make a fixed payment each month without fail. This can be a really convenient way of growing your savings as it removes the temptation to spend the money instead.
You do, of course, need to make sure that you have the funds in your current account to cover the monthly debit otherwise you’re likely to get charged by your current account provider. It’s for this reason that setting up your standing order to leave your account at the start of the month shortly after you’ve been paid can be a good idea.
Finding the best regular savings account
When searching for the best regular savings account possible you should take in consideration the following factors:
Are you eligible?
Many regular savings accounts are only available to certain types of customers so you need to make sure you’re eligible before you apply. Some regular saver accounts are only open to applicants who also have an existing current account with the bank for example, others may only be available to people saving to purchase their first home.
As such you need to check the application criteria as part of your regular savings account search and exclude any accounts that you are not eligible for.
If the interest rate available on an existing customer only regular savings account is particularly attractive it can be worth looking at the associated current accounts on offer from the bank or building society. If you find one that won’t charge you but has some other benefits that you feel could be useful in managing your money then it may be worth opening one so that you can secure the best regular savings account interest rate possible.
Can you access your money?
The flexibility with which you can access your money will vary depending on the type of regular saver account you choose.
Some regular savings accounts will allow you instant access to your money, while others lower your interest rate if you make a withdrawal during the account term. Others will only allow you to access your cash if you close the account altogether – do this and you’re likely to lose any interest you’ve earned so far in penalties.
If you don’t need to access your money you may be able to get a better interest rate by opting for a regular savings account that doesn’t allow withdrawals during the account term. However, if you think you may want to access your savings you need to opt for a regular saving account that rewards you with the best possible rate but still allows you access if you need it.
Are you getting the best return?
As with any savings account, the interest rate paid by a regular savings account will determine how much money your savings will earn.
Once you know how much you want to save each week or month and what access you need, you should find the regular savings account that offers the highest interest rate and meets your criteria.
You can use our regular savings account comparison table to find the best return possible.
Is there a better option?
Regular savings accounts are specifically designed for those who want to build up their savings gradually. However, you should still check if other savings accounts would give you a better return for your money.
Instant access accounts
If you are unable to commit to paying a fixed amount into your savings each month then a regular savings account is unlikely to be the right type of account for you.
Instead, an instant access account could be better suited to your circumstances as you will be able to pay in money as and when you have it available.
Fixed rate bonds
Although the rates of interest advertised for fixed rate bonds often don’t appear as competitive as regular savings account rates, they can sometimes be a more profitable alternative.
As most regular saving accounts cap the amount of money you can pay in each month it means that your returns are limited.
For this reason, if you’re looking to save a larger lump sum then you may find that you are able to get a better return if you opt for a high interest fixed rate bond instead. This way all of your savings will be earning a good return from day one, rather than only a small percentage of your money earning a high interest rate as with a regular savings account.
Cash ISAs are tax free savings accounts and are the only type of savings account that allow you to keep all the interest your savings earn.
If you haven’t used your ISA allowance for this tax year, then compare the best regular savings account you’ve found with the Cash ISAs currently on offer to make sure you are not missing out. The tax free cash ISA allowance is set at £5,640 for the 2012/13 tax year.
You can use our Cash ISA comparison table to find the best ISAs.
If you want to save for the long term and are left uninspired with cash regular saving rates, then a investing on a monthly basis into an investment fund may offer a better return.
However, investments are not a risk free undertaking and the value of your deposits could go down as well as up.
Read our guide, 9 Steps to Finding an Investment Fund That Will Maximise Your Profit for more information.