The Top Regular Savers Discussion Thread

MaxBlax

FULL ARTICLE

Don’t be fooled by those headline rates on the market-leading regular savers, putting your money elsewhere can earn you much more.

The Bank of England held its base rate of interest at 3.75 per cent on Thursday, its fifth successive hold since it was last cut in December.

But while it has remained stubbornly flat, savings rates have soared, with some high street banks now offering annual returns of 8 per cent on regular saver accounts.

Rising swap rates, which reflect what lenders think the base rate will be in the future and are used to price mortgage and saving deals, have prompted banks to offer rates not seen for two years.

On Tuesday Investec launched a three-year deal paying 5 per cent, the first fixed deal of any length to hit 5 per cent since January 2024. Before the Iran war started in February, the best three-year rate was 4.32 per cent.

Anna Bowes from the Private Office, a financial advice firm, said: "It’s extraordinary that we’re seeing savings rates still going up, while the base rate hasn’t changed. It’s an amazing opportunity for savers as you can once again find rates not seen for a couple of years".

How to get 8 per cent
The best rates are on regular savings accounts, where the amount you can deposit has a monthly limit. Santander increased its regular saver rate to 8 per cent variable in June, and Lloyds, Halifax and Bank of Scotland, which are part of the same group, now offer the same rate, fixed for a year. Variable rates often move in line with the base rate, whereas fixed rates stay the same for the term.

Regular savings accounts have far more attractive rates than standard savings accounts, but come with restrictions. As well as the limit on how much you can deposit, banks usually only offer them to savers who also have a current account with the firm, and the headline rate often only lasts for a year before falling to something less competitive.

Santander caps deposits at £200 each month, while the Lloyds Group banks allow £250. Earl Shilton and Monmouthshire building societies limit deposits to £500, but pay less interest at 6 per cent.

Because you have to build up your savings gradually the annual returns are lower than if you could deposit a lump sum straight away.

Bowes said: "An annual rate of 8 per cent sounds amazing, but in terms of what you’re actually going to earn, it isn’t quite as exciting as it sounds.

"Over a year only £250 will earn 8 per cent because it’s invested the whole time. The next month’s payment only earns interest for 11 months, and so on. Overall, you get the equivalent of 4 per cent return on what you have invested over the year".

For example, if you deposited £250 into a Lloyds regular savings account every month for a year, you would have paid in £3,000 and your pot would be worth £3,120. After this, your account would change to a standard saver, which pays up to 1 per cent.

But if you had a lump sum and didn’t mind locking it up for a year you could make more than £120 with a lower rate. The same £3,000 paid into the market-leading one-year fixed deal — 4.92 per cent from GB Bank — would earn £147.60.

You could even match the return on the best regular saver with less money — you would only need £2,440 in the fixed-term account at 4.92 per cent to earn £120.

Rachel Springall from the comparison site Moneyfacts said: "If you have a decent lump sum, it would be preferable to look at other accounts. But saving is not one size fits all, and these 8 per cent regular savers are great if you don’t have a lump sum and want to get into that regular habit of putting away money".

Other options
For anyone with a lump sum who has used up their personal savings allowance it is often best to save into an Isa. Basic-rate taxpayers can earn up to £1,000 a year in interest before having to pay tax on what they make, higher-rate payers can earn up to £500. Additional-rate payers get no allowance.

But you can avoid paying any tax on your interest with an Isa. Savers can deposit up to £20,000 a year into a cash Isa, though this will be reduced to £12,000 in April for anyone under 65.

Because they come with tax benefits, the interest rate on Isas is usually lower than with normal savings accounts. The best easy-access cash Isa rate is 4.52 per cent with Shawbrook Bank via Hargreaves Lansdown, according to The Private Office. Chip pays 4.41 per cent on its cash Isa and Plum pays 4.4 per cent.

The headline rates on these accounts often come with conditions. The rates above are all variable and Chip’s falls to 3.75 per cent after 12 months, while Plum’s falls to 2.54 per cent, and you must keep these accounts open for a year to get the full rate. Plum also pays a lower rate of 3.75 per cent if you transfer your cash from another Isa.

For fixed-rate Isas Tandem pays the best rate on one-year (4.67 per cent) and three-year deals (4.81 per cent), while RCI Bank has the best rate for a two-year deal (4.8 per cent), according to the Private Office.

If tax on your savings interest isn’t an issue then fixed-rate deals have better rates. In addition to GB Bank’s one-year fix at 4.92 per cent, the best two-year rate is 4.85 per cent from Atom bank, for three-year deals it’s 5 per cent from Investec and on five-year deals it’s 5 per cent from Atom Bank. You should check the minimum deposit. For example you need £5,000 to open the Investec account.

For those who need access to their money Springall and Bowes say the easy-access Cahoot Sunny Day Saver is a good option.

The account allows you to invest up to £3,000 in the year, with no monthly deposit limits, and offers an interest rate of 5 per cent for the first 12 months. There are no limits on withdrawals.

But with so many good deals out there at the moment, Springall believes now is a great time for savers to lock in rates.

She said: "Ongoing tensions in the Middle East have seen notable rises to swap rates, and with the cost of living feared to worsen in the months ahead, now is an ideal time for savers to get a guaranteed inflation-busting return on their nest egg".

Savings with UK-authorised banks, building societies and credit unions are protected up to the value of £120,000 per person, per authorised firm in the even that it fails. The protection is limited to £120,000 per banking licence — and some well-known firms are often part of the same group (such as HSBC and First Direct) and share the same licence.

masonic

The level of financial illiteracy in Jack Simpson's opinion piece for the ST is quite astounding. Not just about the regular savers, but also the commentary about cash ISAs.

I wonder how many of his readers actually have a large lump sum they can lock away for a year without any access.

clairec666

Next week in the Sunday Times - Why you should keep your money under your mattress

I'm not going to waste time explaining to this "financial expert" where his maths has gone wrong - I'll just continue to use my own logic when choosing which accounts to open, safe in the knowledge that I'm getting the best rate possible.

Also, I take exception to the use of the phrase "guaranteed inflation-busting return".

Oh well.

flaneurs_lobster

Next week in the Sunday Times - Why you should keep your money under your mattress

Nah, never turn down an opportunity for a listicle.

The top five mattresses when considering a home for your savings…

subjecttocontract

I don't normally read the Sunday Times but I do buy it when they publish the annual Rich List.

snookerloopy96

Ref : Sunday times article.

Not gone through the entire article but its astoundingly bad.

8% is 8%, they don't seem to grasp that.

Plus as we all know, renewing/starting another one means the 'only for 12 months' is not the case.

Then they compound it by 'recommending' accounts which are paying less than at least 2 or 3 instant access accounts I have, though in fairness they mention the Cahoot one.

Maybe they're thinking of people with gazillions who feel putting £200-500 a month away in 10/12/15 accounts either isn't worth the hassle or is beneath them.

But its pretty poor.

subjecttocontract

I suspect there are a lot of people including Sunday Times readers who have absolutely no interest in saving money in regular saver accounts.

Enzo_L

https://forums.moneysavingexpert.com/discussion/comment/82089160#Comment_82089160

It's estimated that the current number of online subscribers to the Sunday Times is 399k, and the print circulation 220-260k, so in terms of the population of the country hardly anyone is reading it, which is probably a good thing if this article is representative of its standard of journalism.

8% is always bigger than 5% is a concept that's not hard to grasp. The Sunday Times needs better journalists and "experts".

The_Groat_Counter

If the ST article had instead made the point that Regular Savers can be taken advantage of by those with lump sums via the drip-feed method, but for some people this is just a level of admin that's too much for them (and it does take a degree of admin) and so provided the best 'save and forget' alternatives that would have been fine. But as it is, it's just innumerate.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82089183#Comment_82089183

Quite right, the accounts are intended for people who want to save towards some sort of goal out of their regular monthly income. The fact that most of them permit access without penalty is also an important benefit for those starting to save.

Using them with a lump sum falls more into unintended loophole territory, and requires a higher level of sophistication.