Regular savings accounts

Regular savings accounts may be a good idea if you can afford to pay in every month and have the discipline to keep up the payments. The interest rates can be attractive, but  you can usually only pay in a certain sum each month – preventing you from placing extra cash in your account as and when it suits you.

The number of withdrawals you can make each year are often restricted,  so don't apply for this type of account if you want unlimited access to your money. 

Also, remember to check before opening a regular savings account whether the interest rate on offer is fixed or variable.

 

 

Is a regular savings account for you?

Also known as 'monthly savers' or 'regular savers', a regular savings account might be for you if :

  • you want to get into the habit of regular saving
  • you're saving for a special event like a wedding or a holiday
  • you want more interest than you can get with a current account or ordinary savings account
  • you don't want to invest a lump sum   

Money fitness tip

Saving a set amount regularly can help you reach that short-term goal much quicker.

How regular savings accounts work

Different accounts work in different ways, but with most banks and building societies:

  • you usually have to pay into your regular savings account every month – typically between £10 and £500
  • you might have to make a minimum number of monthly payments - often 10 or 11 - and the account might have a fixed term, say, one year
  • with bank regular savings accounts, you'll usually need to open a current account before qualifying for a regular savings account and your money will be moved to the current account once the limited term of the regular savings account ends

Risk and return

At the end of the term, you'll get back all the money you've paid into the account plus the accrued interest.

These accounts usually offer higher interest rates than current or instant access accounts. Some offer a fixed interest rate. With others, the rate is variable. See this video about compound interest from the Money Advice Service which explains how your money grows.

The interest rate may be reduced if you don’t save every month or if you need to make a withdrawal.

Access to your money

Rules vary between accounts. Some allow you to take money out, but may give you a lower interest rate for that month or for the remainder of the term. Other accounts don't allow any early withdrawals. 

Check the rules carefully before choosing a regular savings account if you think you may need to access your money during the term. 

Charges

No explicit charges unless you withdraw your money early (if withdrawals are allowed).

Money fitness tip

Check the AER, which shows you whether an account paying monthly interest is better than one paying interest once a year.

Safe and secure?

Cash you put into UK banks or building societies (that are authorised by the Prudential Regulation Authority) is protected by the Financial Services Compensation Scheme (FSCS). The FSCS savings protection limit is £85,000 (or £170,000 for joint accounts) per authorised firm. 

It is worth noting that some banking brands are part of the same authorised firm. If you have more than the limit within the same bank, or authorised firm, it's a good idea to move the excess to make sure your money is proteced. 

How to get a regular savings account

You'll need to contact a bank or building society directly. Some accounts are only available online. Some others, especially some building society accounts, are available only through branches.

If you want a bank regular savings account and don’t have a current account with that bank, you will probably need to set one up

If you don’t already have any accounts with the bank or building society you choose you will need to show them ID and proof of your address. You may also need to show these if it has been a long time since you opened any existing account.

Money fitness tip

Set up a standing order to pay a regular amount into your savings account. Don't forget to increase it when you get a pay rise.

Tax

Previously, if you were a taxpayer you had tax automatically deducted on the interest you earned at the basic rate of 20% from your savings. However, in April 2016 a new personal savings allowance was introduced. This means:

  • Basic rate tax payers can earn up to £1,000 interest on their savings without having to pay tax.
  • Higher rate tax payers can earn up to £500 worth of interest tax-free.
  • Anyone who earns more than £150,000 a year does not benefit from the personal savings allowance.
  • Any interest exceeding your allowance is liable to income tax.

There is also zero-tax band on the first £5,000 of savings interest. This means that anyone with a total income of less than £16,000 won’t pay tax on their savings.

Find out about tax on savings interest and how to claim back tax already paid on your savings income on Gov.uk

If things go wrong

UK banks and building societies are regulated by the Financial Conduct Authority and the Prudential Regulation Authority (PRA). If you're unhappy with the service you get, or you want to make a complaint – see the Financial Ombudsman Service's website.

Next steps

Comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs.

We recommend the following websites for comparing savings accounts:

Remember:
  • Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
  • It is also important to do some research into the type of product and features you need before making a purchase or changing supplier.

Your tips on saving money - are you a regular saver?

See this video - Your tips on saving money - Are you a regular saver? from the Money Advice Service. 

Last reviewed: 03/04/2018

This content has been provided by the Money Advice Service