Even though the base rate has risen from its historic low of 0.25%, it is still extremely difficult to find a savings account that approaches anywhere near the increase in the cost of living.
But that shouldn’t mean you stop looking. Your money should be in the best home possible, so that you are squeezing as much interest out of it as possible.
The good news is, one type of savings account which often pays higher rates of interest than standard easy access accounts is a regular saver account which requires you to pay in a set amount each month.
Regular savings accounts tend to pay a fixed rate of interest for 12 months and are an excellent way to get into the savings habit.
Many banks and building societies offer this type of account, with some of the smaller building societies currently offering the most attractive rates; some providers also offer preferential rates to if you have your current account with them.
How do regular saver accounts work?
Regular savings accounts tend to run for 12 months, and require you to pay in a set amount each month; this usually ranges from £10 or £20 to £250. Some accounts can be operated online or over the phone, but others will only permit access in branch or by post.
Before opting for one of these accounts, you also need to understand the main product features as they can be quite restrictive.
While some will allow you to miss one or two monthly payments in the 12-month period, many won’t and you have to pay money in every month. Fail to do so, and you could face a penalty. In some cases, a missed payment will result in interest being deducted for the remainder of the term.
With a regular savings account you are also not usually allowed to access your money during the 12-month term so if you are looking for somewhere for your emergency fund or a home for your savings that you can dip in and out of, this isn’t the right type of account.
What are the advantages of regular savings accounts?
If you’re willing to abide by the strict terms and conditions, regular savers can be great.
The interest rates are often higher than those on other types of savings accounts and the fact you can’t usually get at your money can be a good thing as it removes temptation, leaving you safe in the knowledge that you’ll have built up a nice pot of money in a year’s time. This can be particularly useful if you are saving towards a particular goal such as a wedding or house deposit.
What’s more if you struggle to be disciplined and put a bit of money aside each month, a the iron rod that is the regular saver could be just what you need to be ruled by.
Thanks to the introduction of the Personal Savings Allowance in 2016, most people no longer pay tax on their savings interest. If you are a standard rate (20%) taxpayer, you can earn up to £1,000 in savings interest tax-free each year. Higher rate (40%) taxpayers can earn up to £500 a year in savings interest without paying tax.
Those on the additional rate (45%) do not benefit from a Personal Savings Allowance and must pay tax on savings interest.
How MoneySuperMarket can help
As a regular saving account can come with a lot of restrictions, it is vital to do your research before signing up.
You need to check the minimum and maximum amount you can pay in each month as well as whether the amount you choose has to be the same each month, or whether it can vary.
Also, look to see whether withdrawals can be made and whether you have to pay money in every month or can miss a month here and there.
MoneySuperMarket’s savings tables will give you all of this information.
Above all, you need make sure that your savings account gives you the flexibility you need. If a regular savings account has too many restrictions consider an easy access account instead.