Regular savings accounts

If you want to make regular monthly savings from your income, one of the best ways is with a regular savings account. There are many of these available on the High Street, though some require you to go into a branch while others may be postal or internet-only.

Regular savings accounts usually have a limited lifespan (typically one year) after which your money will be moved into a far less attractive account. However, you can always open a new account when this happens.

How much interest do they pay?

The best regular savings accounts may pay around 6 per cent interest or more, and 3 to 4 per cent is not uncommon. However, there may be restrictions on how much you can pay in at once. This means, for example, that £1,000 built up steadily over a year at 6 per cent would earn only around £30 of interest (rather than £60) because for most of the year there will be a lot less than £1,000 in the account.

What other restrictions do they have?

Typically there are limits placed on what you can withdraw – some accounts will pay little or no interest if you take money out before the end of the savings term. Others may be more flexible, but will probably pay lower rates as a result. Most regular savings accounts also require you to make a minimum monthly deposit.

What if I have a lump sum to invest?

Most regular savings accounts set a maximum initial deposit size and a maximum (as well as minimum) monthly deposit size. This means that if you have a large lump sum to invest, this kind of account may not be right for it. However, if you do want to take advantage of the high interest rates, you could place the lump sum in a current account and pay it into the regular savings account with a monthly standing order. Talk to an adviser about whether this is the best option.

Is it better than an ISA?

Most UK adults can now earn £1,000 of interest tax free (£500 for higher rate taxpayers; additional rate taxpayers will still be taxed on interest). This means that cash ISAs may be less attractive than regular savings accounts for the majority of savers, so long as UK interest rates remain low. However, when interest rates rise you may use up your tax-free allowance sooner than you think, in which case cash ISAs will become relevant to you once again.

Talk to a financial adviser about the various accounts available on the market, and discuss the best savings strategy for you.