COMMENT
Earn 10% On Your Savings!

By Cliff D'Arcy
October 24, 2005

On 31 October, Alliance & Leicester (A&L) is launching its Premier Regular Saver account, which pays a whopping 10% a year on deposits. However, as you'd expect with such a market-busting rate, there are a few strings attached; here they are:

• This biggest catch is that this account is only available to new customers who open a Premier Direct current account from A&L.
• Existing A&L savers who open this savings account will be paid a rate of 4.5%, not the full 10%, as will anyone opening an A&L current account in the last three months.
• This is a regular-savings account, which means that you must commit to making monthly deposits for an entire year, probably by standing order or Direct Debit. Also, you can't just deposit a big lump sum all in one go - the maximum monthly deposit is £250.
• Hence, the maximum deposit over the year will be £3,000, which means that you'd earn roughly £160 in interest over twelve months.
• You can't make any withdrawals without closing your account and forfeiting a slice of interest, so it's only suitable for patient, disciplined savers.
• Finally, the interest rate is fixed and only lasts for one year.

Essentially, A&L has created this Best Buy savings account in order to lure customers into opening a Premier Direct current account and to encourage them to save. Then again, this is no bad thing, since Premier Direct is a top Best Buy bank account which pays 5% AER on credit balances up to £2,500. What's more, it charges no interest on approved overdrafts for a year, followed by a mere 5.9% EAR thereafter. Also, you get £50 cashback if you recommend this account to a friend, as does your chum.

As I confirmed in The Banking Battle Heats Up, this A&L bank account is miles better than the old-fashioned current accounts that most of us have, which pay 0.1% on credit balances and charge interest rates around 18% plus fees for approved borrowing. Yuk!

After reviewing A&L's new savings account, I checked the Moneyfacts database to discover which other accounts offer high rates of interest on regular savings. None paid 10%, except the Halifax's Children's Regular Saver, which pays a fixed rate of 10% AER on between £10 and £100 a month. This account can only be opened for children aged under sixteen, so it's strictly for parents, grandparents and other generous relatives! To avoid paying tax on a child's interest, the person opening the account needs to complete an R85 form, which your bank can provide.

These are the top-paying regular-savings rivals to A&L's new account:

• HSBC's Regular Saver pays 8% AER on £25 to £250 a month, but you must open an HSBC current account.
• Norwich & Peterborough BS' Gold Savings account pays 8% AER on £20 to £250 a month, but you must open an NPBS current account and deposit a monthly salary of at least £1,000.
• Halifax and Bank of Scotland's Regular Saver pays 7% AER on £25 to £250 a month.
• Leeds BS' Monthly Saver pays 7% AER on £25 to £100 a month.

So, are these accounts just gimmicks, or are they worth having? My personal view is that they are a valuable tool for savers, if you think of them as a one-year bond (which is what they are, in effect). For example, I used a children's regular-saver account to save over £1,200 for my daughter, before transferring the money into her Child Trust Fund (a tax-free shelter for kids). Without the discipline that monthly saving requires, I reckon that I'd have put far less aside!

Finally, before you race to grab one of these market-beating accounts, be sure to read the small print. If you slip up, you could sacrifice the majority of your interest, which would be a real shame!

More: Check out the ace accounts in our Banking and Savings centres!

Cliff owns shares in HBOS, parent company of the Halifax and Bank of Scotland.