In this article we explain how regular savings accounts work and whether they're right for you.
How does a regular savings account work?
A regular savings account is a great way to get into the habit of saving money. You can build your savings at a pace that works for you and benefit from some of the highest interest rates on the market too. This type of account does come with restrictions and limitations, though, so it's probably not the best choice if you want instant access to your funds and complete flexibility. Depending on the account you choose, conditions could include:
- A limited number of withdrawals for the duration of the term
- Not being able to withdraw any money for the duration of the term
- Making minimum deposits by a specific date each month
- Having a current account with the provider
These types of accounts come with both fixed interest rates and variable interest rates, depending on the provider. The term during which you're expected to make deposits can vary as well, but it's generally around a year. After that, the interest accrued is paid out, and the account typically reverts to an instant access savings account with a much lower interest rate.
There are a couple of other things to keep in mind as well.
- In some cases, you might need to pay tax on the interest you've earned over the year - Most people have a personal savings allowance of £1,000; higher-rate taxpayers get a reduced allowance of £500, while additional rate tax payers don't get an allowance. The personal savings allowance is the amount of interest you can earn before paying tax. Above that figure, you'll typically need to pay tax. You can find out how to boost your personal savings allowance by £5,000 here.
- A regular savings account requires a certain level of discipline on your part, as you'll need to save every month to make the most of it - One approach that could work for you here is the "pay yourself first" method. For example, you could set up a standing order that automatically transfers a set sum to your regular savings account on payday each month. The money leaves your account before you have the chance to spend it. And, because the standing order is automated, you're less likely to forget to do it.
What happens if I need to access the money before the end of the term?
While a regular saver works best if you're able to build your savings for the term outlined by your provider, sometimes life happens and you need access to your money. If you think you might benefit from a more flexible regular saver, it's worth exploring options that allow some penalty-free withdrawals.
With certain providers, you'll only be able to access the funds in the account if you close it altogether. The implications of this can vary. Some banks will pay out the interest you've accrued on your money up to that point in time. Others will pay a much lower interest rate, so in effect, you'll suffer a penalty for closing your account early.
What is the difference between a regular savings account and an easy access savings account?
A regular savings account comes with a fixed interest rate and the requirement to set aside a specific amount each month. An easy access savings account usually comes with a variable interest rate, and minimum deposits are fairly low (around £1 for many providers).
They're two very different types of savings accounts designed for different purposes.
- Regular savers are great for saving a lump sum and getting higher rates - However, they're not the most flexible and there can be penalties if you make withdrawals.
- Easy access savings accounts work well if you want access to your money at all times - The interest rate on this type of account may be lower than a regular saver, but it comes with flexibility, which may be important to people who don't have much wiggle room in their budget or other savings to tide them over in an emergency.
You may have come across both easy access and instant access accounts. They're very similar in the way they work, and are sometimes used interchangeably, but easy access accounts are slightly less flexible. For example, while with an instant access account, you can access your money instantly, with an easy access account, it may take a day or two for your money to reach your current account. Some easy access accounts may have limits on withdrawals as well. But, they may come with higher interest rates than instant access accounts which is why some people prefer them.
How to open a regular savings account
Opening a regular savings account works similarly to opening other types of bank accounts. Some banks may require you to have a current account with them before you can open a regular saver, so it might be a good idea to see what your bank offers before making any decisions. Additionally, some providers will only allow you to open a regular saver with them if you've been a client for a specific period of time already.
If you want to open a new current account to benefit from a regular saver, you'll usually need to meet the bank's requirements and provide some form of ID as part of your application. You'll usually need to:
- Be over the age of 18
- Be a UK resident
- Provide ID, which can include a passport or driving licence, for example
- Provide proof of address, which can include a utility bill or council tax bill, for example
Depending on the provider you choose, you should be able to open an account in the branch, online, over the phone, or via post. Some providers have a dedicated banking app, too.
How safe are your savings in a regular savings account
As long as your provider is a UK-authorised bank or building society, your deposits are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 for sole accounts or £170,000 for joint accounts. This FSCS protection is valid for all your money with a specific bank, not just the regular savings account. Be mindful that some banks share a banking licence so you may have less protection if you bank with both. You can read our article 'What is the Financial Services Compensation Scheme?' for more information.
Which is the best regular savings account?
The best regular savings account for you will depend on how much you want to save each month and whether you want the flexibility to access your funds occasionally. These types of accounts usually have minimum and maximum deposit requirements, so you need to ensure you can afford the minimum deposit and that the maximum monthly deposit isn't too low for your needs.
Some regular savers with lower maximum deposit requirements may have higher interest rates. For instance, The co-operative bank has a regular saver with a 7% interest rate where you can save up to £250 per month. This is a lower maximum deposit than some other providers, but also comes with a higher interest rate.
If you want to compare interest rates, check out our best buy tables, including regular saver accounts. These tables are updated frequently to keep up with rate changes and give you the most accurate and up-to-date information.
