Santander customers can now earn 5% interest on a new regular savings account, so Moneywise evaluates how good the bank's new offer is.
Savers can stash up to £200 a month into the Regular eSaver by standing order, but only from a Santander account.
Unlike most regular savings accounts
, customers can change their contribution each month, providing they don't go over the £200 limit. Save too much, and Santander says it 'reserves the right' to switch the account to one paying 0.25% interest.
The account can be opened in branch or by phone, but once open money can be managed online or via Santander's mobile banking app. Savers can withdraw their money at any time without penalty.
However, the catch is that the account only pays 5% interest for the first year. After that, any money saved is transferred to an Everyday Saver account, which pays a paltry 0.25%.
This is Santander's highest paying account and as with all regular savers, while it's not much help as a home for existing savings, it's a good way to get started.
However, it's not the best regular saver
on the market. M&S Bank and First Direct both pay 6% on regular savings accounts to existing current account holders, while TSB and Nationwide both match Santander's 5% regular saver account for their own current account customers.
Finally, for people saving for a house deposit, a Help to Buy Isa
could be a better option. These let first time buyers save up to £200 a month, plus a one-off £1,000 deposit when the account is first opened.
The best Help to Buy Isas (from Santander and Halifax) pay 4%, which is slightly lower than the Santander regular saver. But crucially, the government will add £1 for every £4 saved (up to a maximum £3,000 bonus) in a Help to Buy Isa. See our Top Help to Buy Isas
round-up for more information on how they work.
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.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
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.