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How to find the best savings rate in a low-interest environment

How to find the best savings rate in a low-interest environment

It’s been tough for savers to get any kind of decent return on their money. With interest rates at an historic low, there have been thin pickings in terms of best buy savings accounts. Let's look at the best places to save.

Regular savings

One type of account that does offer a reasonable headline rate is regular savings.  These types of accounts tend to be less popular than straightforward instant-access accounts because you need to put money away each month, usually for a 12-month period. If you don’t, the interest rate is not as generous, and if you withdraw your cash before the end of the year you might lose all the benefits.

The good news is that regular savings accounts are currently paying a much better rate than other accounts on the market.

You need to make a regular commitment so they are a useful way of saving up for something you’ll need in the short to medium term, such as a holiday or home improvements. They also give you the discipline of putting money aside which you have to leave untouched for the year in order to get the most out of the account.


Best paying accounts

One of the best-paying accounts, First Direct, offers a Regular Saver into which you can save £3,600 each year. It pays 6.00% interest and you can save £25 to £300 per month for a fixed term of 12 months. Interest is calculated daily and paid on the 12-month anniversary after account opening.

There are some drawbacks—you have to have a First Direct current account, you are not allowed to make partial withdrawals, and if the account is closed before the end of the fixed period, interest will be paid at the standard Savings Account variable rate—which is currently 0.05%.

So if you do decide to open one of these accounts you’ll need to be sure that you are going to be able to make the 12 monthly commitments.

Moneyfacts, the money information website, says that over the course of a year, the difference between the best-paying regular savings account, and a best-buy deposit account is more than £90. (www.moneyfacts.co.uk)

Someone who saves the maximum regular deposit in the First Direct regular savings account, which pays 6% for one year, would earn a return of £119.17 per year. If they made the same regular deposit in the best paying easy access account, the interest rate of 1.45% would mean they would earn £90.77 less, Moneyfacts says.

When you are choosing a regular savings account it’s important to look at the interest rate, but also how much you are allowed to save each month in order to get the most out of them.

Another best buy, the Santander Regular eSaver, pays 5% on monthly savings of up to £200 a month. The Kent Reliance Regular Savings account pay 4% on a maximum monthly contribution of £500. Whichever account you choose, it’s important to check through the terms and conditions before you sign up, so that you don’t lose the generous interest rate by triggering any of the penalty clauses.

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