Q. I will soon be in a position to start saving £700 a month and want to keep this in cash. I am looking at a regular saver account which has good rates, but the maximum I can save into it each month is £300. Is it worth me setting up two (or even three) regular saving accounts or should I put the remaining £400 in a different account?
Anna Bowes replies
If you don’t have a lump sum to invest and are looking to maximise returns on monthly savings, opening a regular savings account could be a smart move. These accounts often have some of the most competitive interest rates on the market, making them a great option if you are saving consistently.
That said, regular saver accounts often come with conditions. As you mentioned, typically there is a monthly limit on how much you can put in — usually £250 or £300 — and these are there for a reason: to offer good rates while limiting the total amount that banks have to pay high interest on.
It is important to understand how a regular savings account works and whether it is the best option for you.
Many of the top-paying regular savers are only available to customers who have a current account with the same firm, so you may need to open one to qualify, although it doesn’t always have to be your main account.
Opening multiple bank accounts typically does not negatively affect your credit score, but excessive applications for new accounts, especially within a short period, can trigger hard credit checks, which may temporarily slightly lower your score.
Some banks require a minimum monthly deposit or direct debits into the current account, so always review the eligibility criteria of any account you are considering.
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With regard to any regular savings accounts you open, the headline rates may be fixed or variable, which means that the bank could change them at any point, so this is important to check. And you’ll need to keep in mind that some accounts restrict access to your money, meaning you may face penalties or even account closure if you withdraw funds early. That makes them best suited for short- to medium-term savings goals where you won’t need to touch the funds.
Other small print to read is how any interest due on the account is calculated and when it’s paid. This helps to ensure you get the return you expect with the access you need.
Regular savers aren’t for everyone, but when used well, they’re a great way to develop healthy habits and make your money work harder. The highest rates on regular saver accounts are more than 6.5 per cent, although many of these do come with restrictions and requirements. You should be able to find multiple regular saver accounts in which to spread your £700 a month. If you are happy to manage multiple accounts, there is nothing stopping you from having more than one regular saver.
After 12 months, review your situation. Many regular savings accounts have either a 12-month term, after which your money will be moved into another potentially uncompetitive savings account, or the interest rate will fall dramatically after a year.
At the time of writing, the best 12-month regular savings account available to all, regardless of whether they have a current account with the same firm, is with the Progressive Building Society. It’s Online Regular Rainy-Day Saver Account (Issue 3) is paying 5.50 per cent AER — although this rate is variable. You can save up to £300 a month for 12 months, after which the proceeds will be rolled into an online instant access account.
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Principality Building Society has an even better paying account —paying 7.5 per cent, but only for six months and on monthly deposits of up to £200.
The Co-op and First Direct pay 7 per cent but you need to hold a current account with them to be eligible, so these might not be appropriate.
The alternative is to simply deposit your £700 into an easy-access or notice account — you are likely to earn a little less but not a significant difference, depending on the accounts you choose.
If you were to place £700 a month into multiple regular savings accounts earning on average 6.5 per cent, then after 12 months you should earn about £300 in interest. If, however, you put that money into the best easy access account, which is the Chase standard saver with a boosted rate of 5 per cent AER for 12 months, you could earn about £230 over 12 months, assuming that the rate remains the same. You would need to be a new current account customer with Chase to be eligible.
In summary, regular savings accounts can be the most rewarding way to save excess income and you should be able to find enough to house your £700 a month. But you will need to jump through some hoops and should always review your savings on a regular basis.
Anna Bowes has worked in financial services for more than 30 years. In 2011 she helped to set up the consumer website Savings Champion.