Forum Home » Savings & Investments

How can regular savings accounts offer such good interest rates?

New Post Advanced Search

Coronavirus: The latest from MSE


The MSE team is working extremely hard to keep the info we have about your travel rights, cancellation rights, sick pay (and more) up to date.
The official MSE guides: UPDATED MSE Coronavirus Guides

NEWSFLASH


New, free ‘Academoney’ course from MSE and the Open University launches
All the key areas of personal finance are covered, so that you can master your money decisions


How can regular savings accounts offer such good interest rates?

edited 30 November -1 at 1:00AM in Savings & Investments
22 replies 6.2K views
Special_Saver2Special_Saver2 Forumite
1.2K posts
Part of the Furniture 1,000 Posts
✭✭✭
edited 30 November -1 at 1:00AM in Savings & Investments
I have been wondering - how can regular savings accounts offer such good rates?

If you look at the top accounts in my best regular savings thread here, you can see that lots of providers have been paying interest rates of 1.0-1.5% gross p.a. over and above the Bank of England base rates. The catch is that they limit the amount of money that you can pay in each month but you can vary the amount you pay in and even get all your money back immediately without penalty once per year. These accounts are open to both new and existing customers.

Yorkshire BS, Bath BS, Nationwide BS, Scarborough BS and Monmouthshire BS all have accounts that fit this description. Principality BS has been reasonable too, paying 0.7% gross p.a. above base rate. (I am waiting for the effects of the July base rate increase to filter through but the above has been true so far.)

I know they lend the money out to people with a mortgage at higher rates but surely once you take into account the administration costs of opening up and servicing these accounts, the profit margin must be extremely slim.

For the regular savings accounts that are only open for 12 months, I imagine that the banks and building societies are expecting a fair number of people to leave the money in a poor paying account after the 12 months are up and they are happy to gain a few new customers who they can try and sell other products to. Some providers also tie the high interest regular savings account to taking out other accounts and products.

Those first few providers that I mentioned, however, let you carry on saving at very good interest rates beyond 12 months.

How can they afford to do this?
«13

Replies

  • bristolleedsfanbristolleedsfan Forumite
    8.4K posts
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    ✭✭✭✭
    I have been wondering - how can regular savings accounts offer such good rates?

    If you look at the top accounts in my best regular savings thread here, you can see that lots of providers have been paying interest rates of 1.0-1.5% gross p.a. over and above the Bank of England base rates. The catch is that they limit the amount of money that you can pay in each month but you can vary the amount you pay in and even get all your money back immediately without penalty once per year. These accounts are open to both new and existing customers.

    Yorkshire BS, Bath BS, Nationwide BS, Scarborough BS and Monmouthshire BS all have accounts that fit this description. Principality BS has been reasonable too, paying 0.7% gross p.a. above base rate. (I am waiting for the effects of the July base rate increase to filter through but the above has been true so far.)

    I know they lend the money out to people with a mortgage at higher rates but surely once you take into account the administration costs of opening up and servicing these accounts, the profit margin must be extremely slim.

    For the regular savings accounts that are only open for 12 months, I imagine that the banks and building societies are expecting a fair number of people to leave the money in a poor paying account after the 12 months are up and they are happy to gain a few new customers who they can try and sell other products to. Some providers also tie the high interest regular savings account to taking out other accounts and products.

    Those first few providers that I mentioned, however, let you carry on saving at very good interest rates beyond 12 months.

    How can they afford to do this?

    ive answered this in other thread u asked question in, it should be remembered that the average saver wont be able to afford to pay 200.00 a month into nationwides reg saver those who cant or dont will be getting poor rates from nationwide reg saver.
  • missilemissile Forumite
    10.7K posts
    Part of the Furniture 10,000 Posts Photogenic Combo Breaker
    ✭✭✭✭✭
    Similar way that supermarkets sell petrol less than cost. Many regular savers are loss leaders to suck you into having their current account and most (like NW) have strings attached.
    "A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
    Ride hard or stay home :iloveyou:
  • ManAtHomeManAtHome Forumite
    8.5K posts
    Part of the Furniture Combo Breaker
    ✭✭✭✭
    Must be a bit marginal now you can get 6.7% on 1-3 year fixed accounts (best standard account is 6.25% so tranferring from this into a reg saver, you'd need around 7.2% to get the same interest).
  • Thomas_CrownThomas_Crown Forumite
    774 posts
    Part of the Furniture 500 Posts
    ✭✭✭
    ManAtHome wrote: »
    Must be a bit marginal now you can get 6.7% on 1-3 year fixed accounts (best standard account is 6.25% so tranferring from this into a reg saver, you'd need around 7.2% to get the same interest).


    Leeds BS are offering 6.7% on 2 or 3 year fixed rate bonds but who knows what interest rates will be doing over that time scale? Halifax regular saver is currently at 7% fixed for 1 year so if interest rates are higher come the account anniversary the rate may have risen. LTSB regular saver is offering 8% fixed for 1 year so the same applies after 1 year.

    Interest rates are likely to rise again in August & possibly once more later in the year. Who knows what will happen after that, it's all just speculation?
  • Special_Saver2Special_Saver2 Forumite
    1.2K posts
    Part of the Furniture 1,000 Posts
    ✭✭✭
    Thought I would quickly give a link to bristolleedsfan's answer from another thread.

    http://forums.moneysavingexpert.com/showthread.html?p=5808117#post5808117

    I imagine that Yorkshire BS and some of the other providers will continue to avoid passing on the full 0.25% interest rate rises in order to help improve their profitability.
  • ManAtHomeManAtHome Forumite
    8.5K posts
    Part of the Furniture Combo Breaker
    ✭✭✭✭
    Interest rates are likely to rise again in August & possibly once more later in the year. Who knows what will happen after that, it's all just speculation?
    Too true (although my guess is September and possibly November).

    Not that I'm cynical or anything, but 3 years will get us past the next general election whenever it's called...
  • emma396emma396 Forumite
    760 posts
    plus they usually only last one or two years b4 it gets converted into a much lower interest account.
  • Thomas_CrownThomas_Crown Forumite
    774 posts
    Part of the Furniture 500 Posts
    ✭✭✭
    emma396 wrote: »
    plus they usually only last one or two years b4 it gets converted into a much lower interest account.


    That's right Emma, it's very important to get your money out at the end of the regular saving period, usually one year. Then re-invest it, possibly in next year's ISA. I use a regular savings account for my holiday savings, it runs from April - April (Halifax). I've been saving this way for 3 years now.
  • bristolleedsfanbristolleedsfan Forumite
    8.4K posts
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    ✭✭✭✭
    ManAtHome wrote: »
    Must be a bit marginal now you can get 6.7% on 1-3 year fixed accounts (best standard account is 6.25% so tranferring from this into a reg saver, you'd need around 7.2% to get the same interest).

    and thats assuming that the 6.25% account will transfer funds direct to the regular savers, its unclear what experiences people have had regarding this. ( otherwise involves transferring funds back to current account) many people are feeding from accounts paying less than 6.25% gross.
This discussion has been closed.

Quick links

Essential Money | Who & Where are you? | Work & Benefits | Household and travel | Shopping & Freebies | About MSE | The MoneySavers Arms | Covid-19 & Coronavirus Support