Written by Karen Bryan
I’m not that keen on regular savings accounts, where you commit to save a minimum amount every month, usually for a 12 month period, in exchange for a higher interest rate. I have three objections to regular savings accounts. The first is that the monthly deposit is often limited to £250, meaning that you’d end up with £3,000 at the end of the 12 month period. Secondly, although the rates of interest sound alluring, you are receiving interest on a growing balance. This means that at 5% rate of interest, you’d earn around £75 gross interest if you paid in £250 a month, as your average balance would’ve been £1,500. Thirdly, you often have to hold a current account with the financial institution to be eligible to open a regular savings account.
However, I decided I’d take another look at fixed rate regular savings accounts given the dismal rates currently available on instant access accounts and one year fixed rate bonds. One of the prompts to do this is the fact that I need to pay in at least £500 a month to my Santander 123 Current Account to earn the 3% (variable) rate paid on that balances of up to £20,000 in that account. As I only need £200 to cover the monthly direct debits paid from that account and it’s pointless to have more than £20,000 in the Santander account, I need to make monthly withdrawals of £300 from that account to keep the balance under £20,000. A regular savings account seemed like a good home for that £300 a month.
As usual, the highest paying regular savings accounts were only available to current account holders. The best account with no such requirements was a Barclays Monthly Savings account paying a fixed rate of 3.25%. However, if you didn’t hold a Barclays current account, you had to go into a branch to open their Monthly Savings Account. Quite often when you try to open an account in a branch, they try to get you to make an appointment to see an advisor who tries to sell you all sorts of other products you don’t need or want; bank sales pitches are one of the main reasons that I don’t like going into banks. I also thought not having a Barclays current account might mean delays when getting my money out at the end of the twelve month period.
The next best regular savings account was the Norwich and Peterborough E-Regular Saver paying 3.0% fixed made up of a 1.5% rate plus a 1.5% conditional bonus payable as long as you make the twelve payments and don’t make more than one withdrawal. As I’d set up a standing order to make the monthly payment and wouldn’t need access to the money, I should be able to earn the 3% rate of interest. I’ve never had an issue with standing orders not being paid but I suppose it’s a possibility. I’d better keep check that the £250 has arrived in the regular saver account each month.
Unfortunately, the maximum monthly payment into the account is £250. The Norwich and Peterborough Building Society is part of the Yorkshire Building Society, so you need to check that your savings within that group of companies won’t exceed the £85,000 limit for cover from the Financial Services Compensation Scheme.
Within minutes of applying online for the Norwich and Peterborough E-Regular Saver, I received an email with my account number. This enabled me to immediately set up a monthly standing order to pay in £250 from our Santander 123 Current Account. Three days later I received my internet banking customer number and password by post. Very good customer service from the Norwich and Peterboroough.
Rates current on 7 August 2013.