Banks and building societies are climbing the best-buy tables with attractive regular saver accounts, so should you sign up for one?
Savers can get rates of up to 7% on a regular saver account, which can be a "great way to get into the savings habit", said The Times Money Mentor, if you don’'t have a lump sum to invest. You can set up a direct debit so the money comes out of your account each month like any other bill, but this is "one you will benefit from in the future".
There are catches though, said ThisIsMoney, which can "trip up unwary consumers".
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How a regular saver account works
Regular savings accounts offer ways for savers to "save little and often", explained CompareTheMarket. You commit to depositing money each month and "could get a higher interest rate" than an ordinary account.
The accounts require customers to pay a "set amount each month", explained Moneyfacts, and interest is "typically paid on an annual basis".
These accounts can offer "top rates for feeding them every month", said MoneySavingExpert, but they "tend to impose rigid terms and conditions".
What rates can you get on a regular savings account?
The top rate for a regular saver account is currently 7% from First Direct, according to Moneyfacts, and you can also get rates of 6.25% from Lloyds Bank and 5.5% from Coventry Building Society.
The actual return will depend on how much you are saving though.
Calculating regular savings interest is a "complex process", added the comparison website. Rather than earning interest on one lump sum, the money is being "drip-fed into the account", so you could have an annual interest rate of 3% "but only earn the full yearly amount on the initial deposit".
Ultimately, this may mean savers earn less interest than they originally think. Every time the regular saver account is topped up, only a fraction of the headline rate may be earned per month.
The "actual interest" you'll earn will be about half the given rate, explained CompareTheMarket, because it is based on "money in your account at the time, not the final lump sum".
Pros and cons of a regular saver account
A regular savings account "might be for you", said MoneyHelper, to help build a savings habit and if you are saving for a "special event" or just want "more interest" than a current account or ordinary savings account.
However, the top accounts are "usually reserved" for existing customers, said CompareTheMarket, to "reward loyalty", so you may need to have opened a current account first.
Check for "certain restrictions", said Moneyfacts, such as "low maximum investment limits" and overall caps, plus you may be penalised for missing a payment or unable to access your money until the end of the term.
Keep an eye on the rate, said The Times Money Mentor, as the high rates on offer are often 12-monthly introductory rates "before they drop".
Some may be variable and could "change at the provider's whim", added MoneySavingExpert, so be ready to "switch away".
Typically, people can only have one regular saver with an individual bank at any time.
However, if you can afford to save more, "there is nothing to stop you" opening regular savers with different providers, NerdWallet reported. "It may just mean "you need to open more current accounts to get the best rates".
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