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What is a regular saver account?
A regular saver account is a type of savings account that requires you to deposit money each month, with interest paid annually. This makes it ideal for someone who is saving towards a goal in the future, or someone who wants to start a regular savings habit.
Interest rates for regular saver accounts tend to be higher than for other accounts such as easy access saver accounts or fixed rate bonds. But there are certain restrictions attached. Monthly deposits are required, and in most cases if you miss a deposit you will be penalised. Similarly, with regular saver accounts, you may not be able to access your money until the end of the term. Some accounts allow limited withdrawals, but you won’t be able to replace the money you took out.
A regular saver can be a good way to achieve a comparatively high interest rate and slowly build your savings pot. However, you need to understand how these accounts work and what limitations they have in order to make the most of them.
What are the benefits of a regular saver account?
The main benefit of a regular saver account is that such accounts tend to offer a higher interest rate. Because you are committing to regular deposits, and because there is a limit to how much you can deposit in a year, banks tend to offer more favourable rates than those for other cash savings accounts. And in a low interest rate environment, this can be attractive.
A regular saver account is also often used by banks and building societies to reward loyal customers. Banks offer some of the most competitive deals exclusively to their current account holders. Therefore, if you are a current account holder with that provider, you may have access to its regular saver account.
This type of account is also good for setting up a savings habit. By having a set amount that you need to deposit each month, you can ensure that your savings pot grows slowly over time. It also lends itself to savers who have a goal. If you have something you want to purchase a year away, a regular saver account can help you keep on track.
How does a regular saver account work?
The main feature of a regular saver account is that you will need to make monthly deposits. So, when opening the account, you will need to decide how much to pay in each month and how to do so (e.g. by standing order).
Each account will have different requirements. But, for the most part, you will find a regular saver has a minimum or maximum amount you can deposit each month. For example, it may have a minimum deposit requirement of £10 a month and a maximum deposit of £1,000. Within that range, you can decide how much to deposit each month.
However, it is important to note that while some accounts allow you to change your monthly contribution amount and payment method during the term of the account, others do not.
A regular saver typically lasts for 12 months, with the interest rate dropping after the account reaches maturity. Therefore, it is a good idea to make a note of when the 12 months will be up and then switch accounts to find a more competitive deal.
During the term of the account, you will not receive the full headline rate on the full amount. This is just because money is being drip-fed during the year, so your first deposit earns interest for a whole year, whereas your final deposit only earns interest for a month. If you would prefer to know exactly what you will have in your savings pot at the end of a term, a fixed rate bond would better suit your needs.
Any interest you earn on your regular saver account will be paid annually and may be taxed. However, you will not pay tax unless the interest you earn is above your personal savings allowance (£1,000 for basic rate taxpayers, £500 for higher rate taxpayers) or you are an additional rate taxpayer.
What restrictions are there with a regular saver account?
The main restriction with a regular saver account is that you typically will not be able to access your money during the term of the account.
Some providers allow limited withdrawals, but this may only be once during the 12-month term. And you may also find that you then cannot replace the money you took out. So, if you think you will need to access your savings in the near future, you may be better off considering an easy access account.
Another limitation of this type of account is that it is important that you don’t miss a monthly deposit. If you do, you could find that you are penalised in the form of lost interest or account closure.
Also, there is a maximum amount that can be saved in this type of account. This will depend on the monthly maximum deposit. If you have a lump sum to be deposited, a regular saver account probably isn’t the type of account for you.
Are my savings protected in a regular saver account?
As a regular saver account is a savings account, it is protected by the Financial Services Compensation Scheme (FSCS). Under the FSCS, savings up to £85,000 are protected if the financial institution providing the account fails.
It is important to note that this is £85,000 per financial institution. You could have multiple regular savers with different banks, and as long as you do not exceed the £85,000 threshold with any one bank, your money will be protected.