What are Regular Savers?

Regular Savers or Regular Savings Accounts are a form of bank account that usually has a high interest rate if you save a certain amount into the account each month. Often, this will also involve locking your cash away for a pre-determined timeframe; usually one year.

Why do Regular Savers have such high interest?

In reality, the interest rate you see advertised for Regular Savers isn’t actually close to what you actually earn and this is because the advertised rate is AER (Annual Equivalent Rate, e.g: what you earn for leaving the cash in there for one year). However, if you are paying in monthly over the course of one year, only that very first month’s payment is actually going to earn the AER interest rate.

Are Regular Savers worth it?

It depends on how the interest rate works, and whether you would actually be better off elsewhere. So let’s look at an example. At the time of writing, Virgin Money have recently launched a 10.38% Regular Saver which you can pay £250 per month into.

On the basis that you opened this account for 12 months and maximised the contributions out by paying in £250 per month you would earn approximately £166 in interest over the 12 months.

This works out at an actual interest rate of 5.53% on the £3,000 that you have paid in over the course of the year. This is where some people get confused as you may think you would earn closer to £300!

Should you open a Regular Saver?

The key thing to understand with Regular Savers is that you are slowly drip-feeding cash into this account and therefore aren’t locking away £3,000 for a full year but only £250 for the full year, and so on.

Therefore, you could actually hold your cash in another high-paying savings account where it may be earning around 5% already and then move £250 across each month. That way, you would be earning a considerably better amount of interest.

What type of savings should I keep in a Regular Saver?

Generally, I would highly advise against keeping any savings you may need urgently in a Regular Saver as you will usually forgo any interest you have earned if you need to withdraw the funds early. Instead, I would suggest using Regular Savers for future costs you know you are saving for (houses, cars, sinking funds, etc.)