Are regular savers worth it?

specialhat

I've recently been looking at various regular and fixed term savers and it seems to be it seems like the interest is still not really good enough to justify using them. In the HSBC regular saver, if you make the maximum payments, you're locking your money away for a year for the sake of £44.69. In others, you're locking it away for even longer - the best five-year fix offers 2.1% and you can't touch your money.

Am I missing something? Is it worth it?

george4064

There is a few differences between regular savers and fixed term accounts which explain some reasons why their rates might differ, there are probably more which I have missed.

1. Most regular savers allow you to either make partial or full withdrawal (either with or without penalty), whilst fixed term accounts do not allow this.

2. You can make regular deposits into a regular saver (hence the name!), whilst with a fixed term account you simply make a lump sum at the start with no additional contributions.

specialhat

george4064 wrote: »

There is a few differences between regular savers and fixed term accounts which explain some reasons why their rates might differ, there are probably more which I have missed.

1. Most regular savers allow you to either make partial or full withdrawal (either with or without penalty), whilst fixed term accounts do not allow this.

2. You can make regular deposits into a regular saver (hence the name!), whilst with a fixed term account you simply make a lump sum at the start with no additional contributions.

I was really asking why it's worth tying up your money for a year or more for such a poor return. (The regular saver I was looking at - HSBC - doesn't allow withdrawals until the end of the term.)

Eco_Miser

Compare that £44.69 with what putting the same money, at the same time intervals, into the best available easy access account would produce; and decide if the difference is worth the few minutes of your time opening the account and setting up the requisite standing order.
Compare it to the return obtained by reading and posting to this forum for the same length of time.

specialhat

The difference is about £30 a year or £2.50 a month, which I think is worth it to have access to my money.

colsten

specialhat wrote: »

I was really asking why it's worth tying up your money for a year or more for such a poor return.

Is your Q whether you should use fixed term accounts (as opposed to Regular Savers)?

A sensible answer would also need to know how much money you have got available to save & when, as well as what your plans are for using the money (how much, when). Other factors may also play a role, such as your age, your financial commitments (mortgage, kids etc), your pension arrangements, and your risk appetite. As these parameters differ from person to person, there is no one-size-fits-all answer to what the best savings vehicle is.

grumiofoundation

specialhat wrote: »

The difference is about £30 a year or £2.50 a month, which I think is worth it to have access to my money.

You have answered your own question.

specialhat

grumiofoundation wrote: »

You have answered your own question.

I wondered if I was missing something!

Reg_Smeeton

specialhat wrote: »

I was really asking why it's worth tying up your money for a year or more for such a poor return. (The regular saver I was looking at - HSBC - doesn't allow withdrawals until the end of the term.)

Why not open multiple Regular Savings accounts over a period of 12 months with staggered maturity dates. Eg, four RS accounts all paying 2-2.7% with maturity dates 3 months apart. After twelves months you then have a rolling conveyer belt of effectively “90 day (or less!) notice” accounts holding your cash at a much higher weighted % than easy access or indeed most fixed rate accounts.

colsten

specialhat wrote: »

I wondered if I was missing something!

You are.

You haven't told us how much you can save when, and how much you need when. Or any of the other information that is pertinent in deciding what's best in the given circumstances.

bowlhead99

specialhat wrote: »

I wondered if I was missing something!

If you drip money into an RS account over a year your income is whatever it earns in the RS account plus whatever it earns in another account while waiting to be dripped in. Generally the RS account will be paying a higher rate per pound per day than the other accounts. So the more they let you put in, the more extra income you make compared to just letting it sit in another account all year.

If the RS is a 'no access until the anniversary after opening it' account, you just need to consider what's the consequence of not having access to the money.

For example maybe in November you want to buy a TV at £300 discount in the Black Friday sales. Or in March you want to make an extra pension contribution of £1000 to get hundreds of pounds of income tax relief. If you can't because your money is 'tied up' in an inaccessible RS account, you may wish you hadn't locked it away to just to get a few tens of pounds of extra interest compared to an alternative more accessible account.

Nobody can tell you whether you personally would prefer to have money at your fingertips at a low return in an accessible account, or money locked away (in a no withdrawals regular saver, or in a fixed term account) at a higher return.

If you use a no withdrawals regular saver account then from a flexibility perspective that product is a bit of a compromise between an easy access low interest account and a higher interest fixed term account. In the early months of using a regular saver, you'll have most of the money available to you in your ready access account because you have not got around to putting it into the RS account. Then gradually you have less and less accessible money because it's gone into the RS account and for the last month the RS is maxed out. Then you reach the end of the year and get your hands on it all again

You'll earn lowish interest while most of the money is in the easy access account and highish interest in the later months while most of it is in the regular saver. Whereas, if it sat in the easy access account all year you'd get low interest all year with lots of flexibility, while if it sat in a fixed deposit you'd earn better interest all year but not have any flexibility because your cash is all locked away all the time.

If you think that locking your money away in exchange for a higher interest rate is something you don't want to do because you don't know what life will throw your way, you could look at accounts which have a fixed interest rate for a fixed term but allow you to get your money back with an interest penalty. Then if all goes to plan you can get good interest payout, but if all doesn't go to plan and you need the money (or want it for an opportunity like a pension contribution or cheap TV), you can sacrifice some of the interest via a penalty, and get hold of the money.