What is a regular savings account?
Regular savings accounts require you to pay in a minimum amount of between £10 and £25 every month for a year. There will also be a limit on the maximum you can pay in each month, typically £250 or £300. Many regular savings accounts will penalise you if you fail to make a payment one month so only open this type of account if you know you'll be able to pay into it on a monthly basis.
Many accounts also won't allow you to change the amount you pay in during the term so you'll need to decide how much you can afford to save at the time of opening.
Generally-speaking, you won't be able to access your money for 12 months, although a few regular savings accounts will permit one penalty-free withdrawal.
How much interest will I receive?
The interest rates on regular savings accounts tend to be higher than those on other kinds of accounts. The rate is usually fixed for 12 months so you know it won't change during the term of the account.
However, the interest rate does flatter to deceive as you only earn the full amount of interest on the first month's payment. After that, it drops every month until the final month's deposit which will only earn one-twelfth of the interest figure.
The interest rates on regular savings accounts tend to be higher than those on other kinds of accounts.
For example, if you open a regular savings account with an interest rate of 8%, the first month's deposit will earn the full 8% but for the second month, you will earn 11/12ths of 8%. In the third month, you'll get 10/12ths of 8% and so on until the final month's deposit earns just 1/12th of 8%.
Once the 12 months are up, your savings may be moved into another savings account with your bank, but the interest rate will be lower. Therefore you should be prepared to move your savings to a better account as soon as possible.
What else should I know?
A number of regular savings accounts also require you to open a current account with the same provider in order to qualify. Some of these current accounts are packaged current accounts that require you to pay a monthly fee so consider your options carefully before applying for one.
Regular savings accounts are only suitable for those of you who are able to save a small amount each month. They are no good if you have a lump sum to invest or if you need access to your savings. In this case, you're better off choosing a tax-free cash ISA.
Although interest rates on cash ISAs are not as high, the advantage is that you won't pay tax on the interest you earn. In comparison, standard savings accounts, including regular savers, are taxed. Basic rate taxpayers pay 20% tax on the interest earned, while higher rate taxpayers pay 40% tax.
Children's regular savings accounts
It's also possible to get regular savings accounts for children if they are under 16. These can be a great way to teach your children about the importance of saving and get them into the savings habit. Some providers also offer family regular savings accounts which are available to those with children under the age of 16 or up to 18 if they are in fulltime education. These are usually designed to help parents save up for a holiday or Christmas.
Compare savings accounts
MoneySupermarket's free independent comparison service allows you to compare a wide range of regular savings accounts at the click of a mouse. We search for the best deals on the market so you know you're getting a good deal.