Saver of the month: Cheshire BS 5% regular saver
Cheshire Building Society's Platinum Monthly Saver Issue 5 offers savers a guaranteed 5% AER until 30 September 2013. It's currently the top-paying regular saver on the market that's open to all new customers without any caveats.
There are some other regular savings accounts offering better interest rates but they are usually only open to existing current account customers. For example, First Direct has a regular saver that pays 8% to all current account holders. Similarly, HSBC's pays 6% but it is only open to customers with its paid-for current account.
As with all regular savings accounts, to get the rate offered by Cheshire Platinum Monthly Saver you need to make regular monthly contributions - you can put away between £100 and £500 each time.
Only one withdrawal is allowed and if you miss a deposit you will be penalised and only receive 1% interest for the remainder of the 12-month term.
The account can only be opened and operated in branch and interest is paid at the end of the 12 months. At this point the interest rate drops to a miserly 1% so you will need to move your money if you want to carry on earning a high rate of interest.
For more information and to find your nearest branch go to Cheshire BS's website at thecheshire.co.uk.
Regular savings accounts
The attraction of these accounts is the high interest rate they pay. They require customers to deposit money each month, without fail. They come with a number of restrictions, such as monthly deposit limits, no one-off lump sum deposits and restricted withdrawal facilities. Although they are marketed with impressive-looking rates, it’s important to remember that as your money builds up gradually, your overall return will be lower than if you’d deposited a lump sum.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.