Are regular savings accounts worth it ?

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redandwhitestripes
redandwhitestripes Posts: 43 Forumite
in Budgeting & bank accounts
I wasn't too bad at maths in my younger days although things are catching up on me a bit but I was wondering whether those regular savings accounts are actually worth using.

I may be missing the point a little bit , but I did some back of a beermat sums and worked out that the Chelsea 2% at up to £500 a month equates to around 1% over the 2 years.
I have a charter Savings easy access account at 1.31% , so may as well use that.

The best ones I've found are the First Direct and and Nationwide ones.
The TSB, Santander ones don't really offer much, and I only keep the Lloyds one because I like getting a free Empire magazine each month!.

Just wondered your thoughts.
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  • anamenottaken
    anamenottaken Posts: 4,198 Forumite
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    If a regular saver pays 2% pa (aer) then it pays 2% pa on the amount in the account at the time. You drip feed the capital and your actual £ of interest increases as the amount of capital increases.

    Your back of the fag packet/beermat calculation presumably assumes something like you should get interest for the whole year on the amount it only reaches at the end of a contribution year.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
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    redandwhitestripes wrote: »
    I wasn't too bad at maths in my younger days although things are catching up on me a bit but I was wondering whether those regular savings accounts are actually worth using.

    Asuming that you have cash that you are able to lock away for a relatively short period of time then yes, they are, as they pay a higher rate of interest than many other accounts.
    redandwhitestripes wrote: »
    I may be missing the point a little bit , but I did some back of a beermat sums and worked out that the Chelsea 2% at up to £500 a month equates to around 1% over the 2 years.

    No it doesn't, it equates to 2%. The rate of interest earned is 2% and this is paid on all the money that is in the account at any given time. What often confuses people is the perception that because an account offers a headline rate and they can see the maximum that can be deposited, they believe they should earn 2% on that total, but that total is not in the account for the full term. They do earn 2% on all of the money, but only when it is actually in the account.
    redandwhitestripes wrote: »
    I have a charter Savings easy access account at 1.31% , so may as well use that.

    Not really, because you are only earning 1.31% on that money. In one year of depositing £500 per month into the Chelsea regular saver you would earn £64.80 in interest. Over the same period, depositing the same amount into your easy access account, you would only earn £42.49 in interest.

    If you have a lump sum of money that is equivalent to one year at £500 p/m (£6,000) then you would actually be best to use both accounts, and move £500 every month across to your regular saver. This would result in you earning £101 in interest.
    redandwhitestripes wrote: »
    The best ones I've found are the First Direct and and Nationwide ones.

    HSBC & M&S also have regular savers offering 5% on £250 per month, and Santander has one offering 5% on £200 per month. Club Lloyds offers 3% on £400 per month.

    Of those not linked to a current account, Leeds Building Society and Virgin Money offer accounts that beat your example from Chelsea Building Society, with 2.55% and 2.25%, respectively, on £250 per month.
    redandwhitestripes wrote: »
    The TSB, Santander ones don't really offer much,

    I'm not sure how you worked that out! Firstly, the TSB and Santander rates are completely different, with Santander being 5% on £200 p/m and TSB being 2% on £250 p/m, but ignoring your strange decision to equate them, you would earn £64.52 in Santander and £32.40 in TSB. Compare these figures to your 1.31% easy access account and you will see that you earn £22.03 more in Santander. While you would earn less in the TSB account, if you have a lump sum then even using that would increase your return over simply using the easy access.
    redandwhitestripes wrote: »
    and I only keep the Lloyds one because I like getting a free Empire magazine each month!.

    Then you are missing out on a potential extra £77.65 in interest per year!
    redandwhitestripes wrote: »
    Just wondered your thoughts.

    I think the beer mat you used must have been soggy, so that the ink ran and you couldn't make the numbers out clearly.
  • ColdIron
    ColdIron Posts: 9,054 Forumite
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    According to my details for this years self assessment I earned £733.10 from regular savers last year so I'd say it was worth it. It all adds up
  • fabsaver
    fabsaver Posts: 1,279 Forumite
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    Of course they are. Where else can you earn 5% AER with a FSCS guarantee?

    If you're still unsure it's all explained here https://www.moneysavingexpert.com/savings/best-regular-savings-accounts
  • Fingerbobs
    Fingerbobs Posts: 1,641 Forumite
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    Yes, definitely worth it. I've currently got 9 of them running in parallel with different banks and building societies.

    My aim was to arrange to have one maturing every month, but some of them require you to jump through too many hoops to actually get them (e.g. the M&S one requires you to use the CASS to switch to their current account, which isn't something I want to do), so I can't really achieve one a month.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
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    Fingerbobs wrote: »
    Yes, definitely worth it. I've currently got 9 of them running in parallel with different banks and building societies.

    My aim was to arrange to have one maturing every month, but some of them require you to jump through too many hoops to actually get them (e.g. the M&S one requires you to use the CASS to switch to their current account, which isn't something I want to do), so I can't really achieve one a month.

    Why not open a second account with an existing bank and then switch that to M&S? It is very straightforward, and perfectly acceptable.
  • Fingerbobs
    Fingerbobs Posts: 1,641 Forumite
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    ValiantSon wrote: »
    Why not open a second account with an existing bank and then switch that to M&S? It is very straightforward, and perfectly acceptable.
    Definitely an option to be considered, but not something I've personally ever done before.

    NatWest's Savings Builder account also looks potentially interesting. It only pays 1.5% on a balance of £5000, but you can put the whole £5k into it and earn the 1.5% on £5k from day 1, provided you bung another £50 into it each month.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    The nation certainly has ample reserves of people puzzled by the idea that you don't get paid interest on money you've not paid into the account yet.
    Free the dunston one next time too.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
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    Fingerbobs wrote: »
    Definitely an option to be considered, but not something I've personally ever done before.

    NatWest's Savings Builder account also looks potentially interesting. It only pays 1.5% on a balance of £5000, but you can put the whole £5k into it and earn the 1.5% on £5k from day 1, provided you bung another £50 into it each month.

    I'd suggest only worth bothering with once you've exhausted most of the regular saver and current account options.

    To make the best use of it you'd need to withdraw the £50 as well, otherwise you will have an increasingly large sum sitting in it only earning 1%.
  • Joe_Bloggs
    Joe_Bloggs Posts: 4,535 Forumite
    edited 12 May 2018 at 3:04PM
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    I am enthusiastic about acquiring lucrative regular savers. I have jumped through hoops , acquiring access to the best deals.

    There does becomes a time when they mature and that you have bucket loads of cash to find a home for.

    My regular savers mature just before and after Christmas. Rather than buy everyone presents I renew my season travel pass before it goes up in price. In fact I do this by buying on a new 0% on purchase credit card and paying off an old 0% purchase credit card that I used to buy the expiring pass.*

    I do this with interest earned from regular savers and the some of the original capital from the regular saver.

    The 0% credit card also generates a direct debit required for holding a current account that qualifies for a regular saver. So a win-win situation.

    I would not use these cards unless I had the buffer of regular savings that exceeded the debt on these cards .

    Regular savings can be a source of emergency funds. I experience a penalty for withdrawal resulting in a loss of interest/opportunity to replace withdrawn funds. Different penalties may apply, so research terms and conditions as they apply.



    The problem with mainstream savings is the rate of interest that has been forced too low for too long.
    J_B.

    * You may be able to get an employer loan to buy a season ticket but this would be treated by the HMRC as a benefit in kind at their interest rate of 2.5%

    There have been rumors of extending the cycle to work salary sacrifice benefit to include helicopters.
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