The ‘top-paying’ regular savings accounts (and how to beat their rates)

Savers being drawn in by inflation-busting headline interest rates on regular savings accounts might be missing out on bigger returns if they invested their money elsewhere. 

Maximum deposit rules, monthly payment requirements and withdrawal restrictions are common features of high interest savings accounts, and often mean that the interest you get after a year’s committed saving is much less than you might expect.

There’s also a big difference between the kind of rates you can access freely, and the rates that are only on offer to those who go to the trouble of moving their current account to the provider.

Here, Telegraph Money reveals what the top-rate regular savers really pay you, and how you could get a better return elsewhere.

What top-rate regular savings accounts actually pay

When you compare the interest you could receive on an equivalent lump sum, some of the top-rate regular savings accounts are often paying out just a little over half of the advertised rate. 

This is due to how regular savings accounts operate. Most require savers to pay in a certain amount each month, meaning the balance increases gradually over time. With interest being earned on small amounts to begin with, you’ll receive much less than if you deposited a lump sum into an account with a much lower rate.

The table below shows the top rates available to any new customers as of February 12 2024, using figures from Moneyfacts.

Gatehouse Bank’s Regular Saver pays 7pc, but since it is a Sharia-compliant account this is an “expected profit rate” (EPR) rather than AER. It has a maximum annual deposit of £3,600, but you can only pay in up to £300 a month. The most interest you can earn over 12 months is £136.50, assuming you make the maximum deposit each months, make no withdrawals, and the rate stays the same.

You could earn more interest if you saved the £3,600 lump sum with the current top easy-access account from Coventry Building Society, paying 5.15pc. Over a year, you’d earn £189.84 in interest.

If you’re set on getting a regular savings account, you could get a higher rate by signing up to certain current accounts. 

For accounts open to only existing customers, the best rate is with First Direct, which is offering 7pc. 

The maximum yearly deposit is just £3,600, that is £300 a month, meaning that over the course of 12 months it will earn a maximum of £136.50. 

This represents an actual annual rate of just 4.55pc for the £3,600 lump sum, just over half of the account’s headline figure.

Elsewhere, Nationwide is offering an account at 6.5pc, where you can gradually pay in up to £2,400 over 12 months. You can earn up to £84.50 in interest, the equivalent of 3.4pc annual growth on the final balance. 

Are regular savings accounts ever worth it?

Deciding where to invest your money is becoming an “increasingly complex minefield”, according to Charles Archer, an independent financial advisor.

“Regular savings accounts sound appealing, but the monthly deposit limits mean that the effective rate of interest paid can be just over half of the headline rate,” he said.

“Many savers find that setting up a regular deposit gets them into the savings habit, but in my view disciplined savers are often better off ignoring regular savers at present.”

That being said, for savers who don’t have a lump sum available to them, a regular saver could be the key to building one up – and earning more than if you were drip-feeding savings into an easy-access account.

Once the regular savings term is up, you could then potentially have more than £3,000 to set aside into a fixed-term account, where you can really start racking up the interest.

Whatever you decide, it’s crucial to always keep enough cash handy for emergencies.

“We have always suggested that everyone hold a minimum of three to six months expenditure in cash,” said James Norton, Head of Financial Planning at Vanguard.

This article was first published on July 5 2023, and has since been updated.