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What is a regular savings account?

A regular savings account is for people who want to put money away every month. These accounts run for a predetermined length of time – often 12 months but sometimes longer. During this period, you earn a fixed interest rate on your money. 

In order to receive this rate – which is usually higher than those available on standard instant access or notice savings accounts – you have to pay in a specified amount each month and avoid making any withdrawals. The amount you need to deposit each month varies from £10 to £500, depending on the account. 

For instance, if you open a one-year regular savings account and put in £100 every month (the maximum amount you can add to receive the advertised interest rate), by the end of the 12 months, you'll have £1,200 in the account, plus any interest you've earned. 

How do regular savings accounts work?

Regular savings accounts come with strict rules that you must follow to earn the interest on offer. To benefit, you have to:

• Commit to putting in a set amount of money every month for the entire duration of the account. This amount might vary – for instance, between £25 and £250. However, if you don't pay in at least the minimum each month, you'll be penalised, losing out on some of the interest you could have earned

• Leave your money in the account until the end of the term. Making too many withdrawals before then could result in penalties or your account being closed

• Be an existing customer. Although this condition isn’t universal, you can often only open a regular savings account with a bank or building society if you already have a current account with the same institution

Advantages of regular savings accounts

The main attraction of regular savings accounts is that they offer higher interest rates than those available on other types of savings accounts. 

Here’s a quick breakdown of the main advantages of regular savings accounts:

• They offer higher interest rates (up to 7% at the time of writing for a one-ye)

• Interest rates are generally fixed for the account term, so you know how much interest you should be paid overall

• Like other savings accounts, they are generally risk-free, meaning you’ll get back all the money you’ve paid into the account and any interest you’ve earned at the end of the term

• Having to save a fixed amount each month encourages individuals to adopt a healthy approach to saving, helping them get into the habit of saving regularly

• The penalties you face if you make withdrawals before the end of the account term can make you more disciplined about your spending

Disadvantages of regular savings accounts

While regular savings accounts look attractive due to the high interest rates on offer, they are not right for all savers. 

Here’s a breakdown of the main disadvantages of regular savings accounts:

• You can’t use a regular savings account to earn interest on a lump sum, so they are not suitable if you’re looking for a home for a large amount

• The amount you can save into the account each month will be capped, usually at somewhere between £200 and £500

• You will only earn interest on the amount you have in the account, which limits the benefit of the higher interest rate – particularly towards the beginning of the term

• You may face penalties or close your regular savings account altogether if you need to access your savings during the term, making these accounts unsuitable for emergency funds

• The best regular savings accounts are usually reserved for current account customers of the account provider

• You will often lose interest if you miss a monthly instalment, with many accounts lowering interest rates for customers in this position

Is a regular savings account right for you?

Regular savings accounts are a great option for people with a short-term savings goal, providing they can save a qualifying amount – for instance, between £25 and £250 – into the account every month of the term and do not need access to their savings during that time.

When comparing savings accounts, it’s important to consider your circumstances and whether you can meet the account’s rules.

As the rules vary between accounts, it’s also worth checking the exact terms. If, for example, there’s a chance you might need to make a withdrawal during the term, it’s better to choose an account that only lowers the headline interest rate for the month concerned and not for the entire account term. 

Regular savings account checklist

A regular savings account could be the right choice for you if:

• You want to get into the habit of saving regularly

• You have enough spare cash available each month to meet the account terms

• You are saving towards a short-term goal such as a wedding or a new sofa

• You don’t expect to access the money in the account until the end of the term

• You don’t already have a lump sum you are looking to invest

What are the alternatives to regular savings accounts?

There are lots of different types of savings accounts available. The right one for you depends on how and why you want to save. 

Popular alternatives to regular savings accounts include:

• Fixed-rate savings bonds, which can sometimes offer interest rates to rival regular savings accounts if you’re prepared to lock your money away for several years

• Cash ISAs, which allow you to save up to £20,000 tax free each year (above and beyond the Personal Savings Allowance) and can come with fixed or variable interest rates

Premium bonds, which offer a safe home for your savings and can yield big rewards if you’re lucky