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Updated: 23/2/2012

Regular savings accounts are great if you want to put away a bit of money every month to save up for something special. They can also work well if you want to put some money away regularly for your children. Of course, you can put a bit away using any normal savings account. But there are accounts designed specially for regular savers. We’ve rounded up the best rates and put together a Moneymagpie guide.

• Regular savings – what’s the deal?
• Should I get an account?
• What about an account for my child?
• Who has the best rates?

What are they?

Regular savings accounts require you to deposit a certain amount of money each month and in return you’ll get a good rate of interest.

There are usually minimum and maximum amounts you can deposit each month. Expect to be asked to put in at least £10 and not more than £500.

This is great if you want to be disciplined and save a little each month. However, the rules are fairly rigid. If you don’t put the minimum in, the interest rate you get will often suffer.

Some regular savings accounts are flexible, letting you take out money as you please.

However, others will penalise you for making early withdrawals. You may end up losing your interest payments completely for a month – or even having your account closed – so make sure you always check the terms and conditions.

Regular savings accounts usually only last for 12 months. After this period, your account will automatically be converted into a normal savings account with, usually, a lower rate of interest.

So – don’t lose out on interest payments. Keep a note of the date your account runs out and be ready to transfer your balance to another high-interest regular savings account when the term comes to an end.

Should I get one?

Big deposits

Regular savings are called regular because they are about saving a little each month. They do not allow you to deposit lump sums, mostly because they don’t want to be paying big interest rates on large amounts of cash.

If you already have a large lump sum, you’re much better off going with either a fixed-rate account, or a flexible savings account. For more on other savings accounts, click here.

If you don’t want to deposit a lump sum – but you have got more than £500 per month to save – you have two options.

- You can open two separate regular savings accounts, into which you deposit as much as possible each month. This way you’ll still get the high interest rate.

- Alternatively you can opt for a flexible savings account. This sort of account lets you put in as much as you like (within reason – there is usually a limit but it’s very high). You’ll then earn interest on all of it.

The interest rate for flexible savings will probably be lower than regular savings. But in the long run, you’ll make more in interest by having a larger amount of money in the account, than by sticking with the higher interest rate.

Interest as your income

If your main income is the interest from your savings, a regular savings account is certainly not what you want.

Because you can only save a limited amount, the interest you make on your savings will also be limited, and certainly won’t be enough to provide you with a monthly income.

Are all regular savings accounts linked to a current account?

Some regular accounts require you to have a current account with the same bank. In return they often offer a very high interest rate – typically between 4% and 6%.

On the downside, the current accounts involved tend not to be great. They either have a non-existent interest rate and no added benefits, or they are accounts you have to pay to use.

This means you usually end up spending the extra interest you make on maintaining the current account – so in the end it’s not really worth it.

However, if you already have a current account you’re paying for, do make the most of it by getting the high rate regular savings account that goes with it.

How often is the interest paid?

Interest on regular savings accounts is either paid monthly or annually.

If your interest is paid annually, it means that you aren’t earning interest on your interest. In the long run, this means the bank pays you less money for the pleasure of having your money to invest.

If interest is paid monthly, you get your hands on any extra cash straight away. Plus, you can choose to keep the cash in the regular savings account.

Any interest is independent of the maximum deposit you can make in a month. This means you can earn interest on sums on top of your maximum deposit, making you more money.

It’s important to remember with regular savings accounts that interest is calculated on either the daily or monthly balance. So you are only paid interest on the balance of the account each month.

That means at the beginning, when you have paid just a little money in, you’ll be making only a small amount of interest. The interest you make will grow with the amount of money that is in your account.

What about regular savings for children?

You can get a regular savings account just for your children. Children’s regular savings accounts are in the name of your child.

As a result they’re usually tax-free, because children rarely use up their personal tax-free allowance.

They work in a very similar way to regular savings accounts for adults. Your child will have no access to the money in the account, and if money is taken out or any monthly payments are missed, the interest rate will be forfeited.

However, there are some massive rates to be had. Currently the best is the Halifax Kids’ Regular Saver offering 6% AER

• Available for children up to 15 years old
• Minimum monthly payment: £10
• Maximum monthly payment: £100 – payments can be made in as many deposits as you like, so it’s good for the gradual emptying of piggy banks!
• No withdrawals – upon closure, the balance plus interest will be transfered into your nominated savings account
• The account stays open if you miss a payment, but you are reducing how much money you can save, and hence interest you can make.
• After one year it reverts to a variable rate easy access account with a much lower interest rate.

Another good product for children is the Clydesdale Bank Child Savings Bond, although be aware that it is a bond as opposed to a regular savings account. This means you deposit a lump sum and receive interest on your money for the fixed term, instead of making regular deposits. Savings bonds rarely allow withdrawals and if they do, will charge you and you’ll also lose interest.

• Interest rate: 4.25% AER
• Available for children up to 16 years old
• Minimum deposit: £50
• Maximum deposit £250,000
• Account term: five years
• No additional deposits
• Withdrawals from the Child’s Savings Bond are not permitted until the account reaches the end of its five year term
• Make sure you open the account with an R85 form so your child will receive un-taxed interest

Where can I find the best rates?

At the moment, the best rate on the market for regular savings is 4.1% AER. Be aware that you must open another savings account with the bank at the same time as your regular savings account. Your money will typically be transferred to this account, which will almost always have a significantly lower interest rate, when the account matures.

West Brom BS Direct Fixed Rate Regular Saver (Adult)

• Interest rate: 4.1% AER at a 12-month fixed rate
• Available for those 17 and over
• Minimum investment is £10, and maximum is £3,000.
• Minimum monthly payment is £10
• Maximum montly payment is £250
• A minimum of 10 and maximum of 12 regular monthly payments can be made.
• Withdrawals are not permitted.
• Interest calculated daily, but paid annually.
• 0.5% Gross p.a/AER is paid if more than two regular calendar monthly payments are missed.
• Only available to open in branch.

Principality Building Society One Year Regular Saver Bond

• Interest rate: 4% AER
• Minimum monthly deposit: £20
• Maximum monthly deposit: £500
• No withdrawals or missed payments for the 12 months.
• Account term: one year
• Interest paid: On maturity

First Direct Regular Saver Account (You must have a First Direct 1st account)

• Interest rate 8% AER. After 12 months the money saved and interest earned will be transferred to either an Everyday e-Saver or a Savings account with very low interest rates.
• Initial deposit between £25 and £300.
• Every month a deposit of betweem £25 and £300 has to be made. The amounts carry over, for example if you were to deposit £25 one month then you would be able to deposit up to £575 the next month.
• If you fail to deposit the required amount or have to close the account early then you will receive only 0.25% AER on your savings up to that point.
• Account term: 12 months.
• Interest paid: on maturity.

HSBC Regular Saver

This account has an impressive headline rate of 8% AER. Too good to be true? It kind of is. This is because you only get the 8% rate if you have HSBC’s Premier, Advance, Graduate (Advance) or Passport Accounts. What you have to bear in mind is that all these charge a monthly subscription fee, so that will eat into your interest rate. Also you’re tied into a less competitive current account in order to get the 8% rate, again making it less attractive than it initially appears.

However, the account does come with benefits such as worldwide travel insurance and roadside breakdown assistance. Click here for details.

Flexible regular saver

The following regular saver from Norwich & Peterborough Building Society’s Regular Saver Account offers flexibility when you need to withdraw some money. It offers an interest rate of 2.5% AER and an additional 1.5% bonus if you make 12 consecutive payments and don’t make more than one withdrawal in 12 months.

Withdrawals can be made at any time and without notice, but if you make more than one in 12 months, you lose the conditional 1.5% bonus interest.

• Interest rate: 2.5% AER with conditional 1.5%  fixed for 12 months and variable thereafter
• Minimum monthly deposit: £1
• Maximum monthly deposit: £250
• Interest is paid annually
• No missed payments – but can pay as little as £1
• The interest is fixed for the first year and you can close it at any time after that – bearing in mind that closing it will lose you the bonus 1.5% interest for that year

Regular saver that offers more interest but more terms

Norwich & Peterborough Building Society offer 5% AER on a Gold Savings Account when you have a Gold current account. Transfer £500 or more into your current account each month (this is most likely to be your wages or salary) and make monthly payments into the savers account between £20 and £250 to gain this fantastic offer.

• Available to customers aged 18 and over
• Minimum monthly deposit: £20
• Maximum monthly deposit: £250
• At least £500 must be paid into your Gold current account every month
• No withdrawals are allowed
• Account term: 12 months
• Interest is paid on the anniversary of opening the account

A maximum of £3,000 can be saved in a year. After the fixed term of 12 months, the funds will be transferred to an easy access Easy Plus account. The account cannot be opened online, but can be managed online, in branch or by post.

See how much you would save

See what difference the interest rates above would make to your savings by using our handy calculator below:

Compound Interest Calculator