Regular savings accounts

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Regular savings accounts can be a great way to save for a special event or simply to build your savings over time. They also have the added benefit of helping you to pick up good savings habits and learn how to save consistently. But with so many options available, how can you find the best regular savings account for you?

On this page, you’ll learn more about regular savings accounts, how they work and the key benefits. We also include tips to help you find the best regular savings account on the market.

The rundown
  • Monthly deposits: Regular savings accounts require you to make monthly deposits over a set period of time
  • Savings habits: Regular savings accounts may encourage good savings habits and can help you to meet short-term financial goals
  • Beware restrictions: There are some restrictions with regular savings accounts, such as maximum deposit amounts and missed payment penalties

What is a regular savings account?

Regular savings accounts require you to commit to saving a set amount of money each month, usually between £25 and £250, over a fixed period. With a monthly savings account, you automate these monthly payments, so you know exactly how much you’re saving and when.

Regular savings accounts tend to have better interest rates than standard savings accounts, but restrictions usually apply: 

  • Most monthly savings accounts have low maximum deposit limits to moderate the interest you can earn 
  • Some banks may penalise you if you miss a monthly payment
  • You may be restricted from accessing your money until the end of the term.

While monthly savings accounts may offer a better return than traditional savings accounts, interest rates won’t be as competitive as those available on lump sum savings accounts such as fixed rate bonds and notice accounts.

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What’s the difference between a regular savings account and a monthly savings account?

There is no difference between a regular savings account and a monthly savings account. This type of account is called a regular savings account because you save money regularly, and it’s also known as a monthly savings account because you save money each month.

Are notice accounts different from regular monthly savings accounts?

Yes, notice accounts are different from regular monthly savings accounts as they require you to give your bank notice before making a withdrawal (typically between 30 to 180 days). You also typically open the savings account with a lump sum, and are unable to make further deposits throughout the year, unlike a regular savings account. 

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How do regular savings accounts work?

When you open a regular savings account, you’ll normally be required to automate a monthly deposit into your regular saver. The amount you deposit is up to you, but a minimum and maximum deposit will apply and will depend on the account you open. The minimum monthly deposit is usually £10, and the maximum £400.

It’s important that you deposit the set amount each month, as banks can penalise you by lowering your interest rate or charging you if you don’t. Other things to consider include restrictions on how much you can save, when you can withdraw and the agreed time period you’ll get the interest rate for. 

Once you’ve completed your term, you could withdraw your original deposit along with any interest you’ve earned and spend it on something special, or perhaps re-invest your money as a lump sum into a fixed rate bond or notice account to grow it even more.

What happens if I miss a monthly payment?

Monthly savings accounts tend to have strict rules, and fulfilling your commitment to a monthly payment is often one of those rules. If you do miss a payment, your account may be closed or your interest rate reduced. It’s always best to check the small print before you open an account.

Can I make withdrawals from my regular savings account?

Whether you can withdraw money from your regular savings account is likely to differ between accounts and providers, but most of these types of savings accounts don’t allow you to withdraw money before the end of your agreed term. 

The ones that do may charge you for making withdrawals, so this is something to keep in mind when deciding which regular savings account is right for you.

Is a regular savings account the best option for me?

A regular savings account might be right for you if you don’t have a lump sum to invest now but can save a small amount on a monthly basis. The restrictive nature of a regular savings account makes it ideal if you struggle to save but want to grow a pot of money for a significant purchase, such as a house deposit, your retirement or a wedding. It’s also a good way for teenagers and young adults to learn how to save and get into the habit of saving.

If you’re planning for a special event like a wedding or holiday, a monthly savings account might earn more interest than a standard savings account, but it would also be worth considering a notice account which would typically offer a higher interest rate.

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What are the benefits of a regular savings account?

The key benefit of regular savings accounts, and the reason that most people opt for them, is the higher rate of interest you get when compared to other savings accounts. 

Another advantage is that they often run over a shorter period of time, such as 12 months, making them a great option for short-term savings goals such as a wedding or new car. 

Regular savings accounts also restrict your access to your money for your agreed term and limit the withdrawals you can make, which is handy if you struggle with impulse spending.

What’s more, any money you deposit in regular savings accounts provided by UK regulated banks and building societies is protected under the Financial Services Compensation Scheme (FSCS). The FSCS will pay compensation up to the limit of £85,000 per person (£170,000 for joint accounts), per authorised financial institution in the event your bank or building society collapses.

Do I pay tax on a regular savings account?

Basic rate taxpayers can earn up to £1,000 of tax-free interest on their regular savings account. Higher rate taxpayers can earn up to £500. If you earn more than £150,000, you won’t benefit from this personal savings allowance

If you have non-savings income (for example a salary or pension) of less than £17,570 per year, you may also be eligible for the starting rate for savings, which allows you to receive up to a maximum of £5,000 in tax-free interest. The £5,000 starting rate is reduced by £1 for every £1 of non-savings income you earn over your personal allowance (£12,570 in 2023/24).

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How to choose the best regular savings account for you

To find the best regular savings account for you, first consider your own financial circumstances, how much you have to save and whether or not you will need access to your cash during the agreed period. 

Typically, the best regular savings account is the one that pays the highest rate of interest. You’ll also need to check the small print to make sure the set term and withdrawal options work for you as well.

Key points to consider when opening a regular savings account

Before choosing a regular savings account, it’s important to do your own research. The key considerations outlined below contain important information that might help.

1. How many regular savings accounts you can open

You can open more than one regular savings account across different banks (some regular savings accounts require you to already have a current account with that bank). A regular savings account is designed for you to save smaller amounts monthly. If you have more to save, you can open more than one monthly savings account.

2. Does this type of savings account meet your savings goals?

The total amount you earn from a regular savings account is likely to be less than you would earn from a fixed rate bond or notice account. This is because you’re saving a smaller amount each month and growing your savings pot, rather than earning interest on one lump sum. Additionally, some regular savers offer variable interest rates, meaning your interest rate may drop during the term of your account.

3. What restrictions the account has

Monthly savings accounts tend to be quite restrictive, such as limiting the number of withdrawals you can make or penalising you if you miss a payment, so be sure to do your research to help you find the best monthly savings account for you.

4. What the term of the account means for your savings

Some regular savings accounts switch to standard savings accounts after 12 months. At this stage, it could be best to switch accounts to one that earns a better interest rate.

5. How much interest you’ll actually receive

The interest you earn at the end of your term isn’t calculated from the balance of 12 months worth of savings, rather, it’s an average of what you save each month, meaning you could end up earning less interest than the headline rate.

What are my options once I've built up my savings in a regular monthly savings account?

Aside from withdrawing your savings to pay for something special, you could use the money you’ve saved to make a lump sum deposit into a fixed rate bond or notice account, where you can earn a better rate of interest.

If you want to open a lump sum savings account through our marketplace, you can find short term notice accounts and easy access savings accounts which offer variable rates, as well as longer term fixed rate savings accounts.

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