Savers attracted by the high interest rates banks are offering on regular saver accounts could be left disappointed, as returns might be less than expected and many deals have strings attached.
These account boast super-sized interest rates of up to 7 per cent - but the way that the returns are calculated means many savers won't get as much as they thought.
This is Money's research reveals that, in cash terms, only one regular saver deal offers savers better yearly returns than the top easy access account, which pays under half that headline rate - 3.4 per cent.
Choosing the next best regular saver account, which has a headline rate of 6.25 per cent, would still leave the customer worse off.
Careful consideration: When it comes to headline savings rates, bigger is not always better when it comes to the pounds in savers' pockets at the end of the year
How do regular savers work?
Regular saver accounts, as the name suggests, encourage people to put a fixed amount aside every month. Interest is normally paid after one year.
The niche savings deals are in the spotlight because of their role in a row over high street bank savings rates.
Banks have come under fire from MPsfornot passing on the Bank of England's base rate increases to their easy access accounts - the most popular type of savings deal in the country.
In response, the UK bosses of Barclays, HSBC, NatWest Group and Lloyds Banking Group all argued that savers did not really want better easy access account rates.
Instead, the bank chief executives argued, savers wanted to be encouraged to save with better regular saver deals.
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HOW THIS IS MONEY CAN HELP
- How to get the best savings rates on deals both online and in physical bank branches
How is the interest worked out on a regular saver?
There are several strings attached to regular saver deals that can easily trip up unwary consumers.
The first is that the way interest rates are worked out on regular saver deals can trip savers up and mean they earn far less than they think.
Take the best regular saver rate, from First Direct, as an example. This deals pays 7 per cent, and lets you save up to £3,600 a year.
Seven per cent of £3,600 is £252, but the First Direct deal does not pay that amount. Instead it only pays a maximum of £136.50 a year.
The reason is that you only earn a fraction of that headline rate per month, every time you top the regular saver up.
Only in the final month would you get the full 7 per cent interest.
Banks have to point this fact out in their terms and conditions, but many savers remain unaware of it.
The deals are useful as they help encourage a savings habit among consumers. They have traditionally been aimed at groups that needed help to save for one big event a year - normally Christmas.
Most regular savers also restrict how much money you can save, with the big banks currently setting limits of between £150 and £400 per month.
Regular savers mostly do not allow withdrawals - and can even close if you try to withdraw any money. And getting a regular saver also means getting a current account with the bank that offers it.
Slow and steady: Regular savers encourage customers to deposit a similar amount into their account each month
Anna Bowes, founder of financial experts Savings Champion, said: 'There are lots of strings attached to these accounts. Savers do have a responsibility to understand what it is they are signing up for, but that is sometimes not straightforward and not everyone has the capacity to understand them in the same way.
'The headline rates on regular saver deals are often amazing. I don't object to regular saver accounts at all, because if you are only able to save little and often they can provide the best rates.
'But to keep the maths easy, someone taking a deal with a headline rate of 7 per cent, saving £100 a month, would not earn £84 a year in interest. They would get approximately half that, because only one of those monthly deposits earns the full interest rate.'
Are regular saver rates better than easy access accounts?
On the face of it, regular saver rates look unbeatable, with many paying interest in the region of 4 per cent to 7 per cent a year.
But only one regular saver deal pays enough interest to beat the returns possible on the best easy access account.
To show this, we have looked at how much a saver could earn by maxing out each of the top five regular saver deals, then compared that to the interest they could get putting the same amount into the best easy access deal and not touching it.
The top easy access account, from Chip, pays 3.4 per cent a year, and we found only First Direct's Regular Saver beats it when it comes to interest.
First Direct
Leading the pack with regular saver interest rates is First Direct. The digital bank, owned by HSBC, has a regular saver account that pays 7 per cent a year on up to £300 a month, or £3,600 over 12 months.
A saver putting in the maximum possible would earn £136.50 in interest with this regular saver, £122.40 more than putting the same amount into the Chip easy access account.
An HSBC UK spokesperson said: 'We give customers access to a wide range of savings products that cover different needs of savers, some of which provide greater return than the base rate, including our regular saver at 5 per cent with HSBC and 7 per cent with First Direct.
'While our savings accounts are not linked to base rate, we have increased interest rates on savings accounts eight times in the last year, and every savings product has seen its interest rate increase on multiple occasions during that time, supporting customers to start a positive savings habit and save towards longer term goals.'
Why are regular saver rates so high?
The reason regular saver rates are so high is that running them is very safe and predictable for banks.
Savers deposit similar amounts every month for a set period, leave it all in the bank for a year and then interest is paid at the end.
That is the total opposite of the easy access account, where banks run the gauntlet of savers paying in and withdrawing uncertain amounts of money with no warning.
The predictability of regular savers gives banks certainty about how the cash within them will be treated, which in turn gives them access to better interest rate options to pass on to customers.
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Lloyds
Lloyds' top regular saver is its Club Lloyds Monthly Saver, which pays 6.25 per cent a year. Savers putting in the maximum of £400 a month would earn £150 after 12 months.
However, someone putting the same total of £4,800 into the Chip easy access deal would earn £163.20.
The Club Lloyds Monthly Saver deal is only available to customers who have a Club Lloyds current account. This has a fee of £3 a month, though this is waived if you pay in £1,500 a month or more to the current account - rising to £2,000 a month from April 1.
NatWest/RBS
These sister banks both have an identical deal - the Digital Regular Saver. This pays 6.17 per cent interest on balances of up to £5,000, and 0.65 per cent on anything higher than that.
The deal does not expire after a year, unlike many other regular savers, and it does let customers take money out at any point.
However, consumers can only save £150 a month, or £1,800 a year, into the deal.
That means the most a saver can earn a year in interest is £59.83.
Consumers could get slightly more (£61.20) in the best easy access deal.
A NatWest spokesperson said: 'We have been focusing on helping our customers to develop a savings habit and since 2020 we have helped 1.7 million customers save £100 or more for the first time.'
Halifax
The Halifax Regular Saver pays 4.5 per cent interest on up to £250 a month, or £3,000 a year. After that time a saver contributing the maximum would have earned £67.50 in interest.
Putting the same amount into the Chip deal would earn a saver £102.
How to find the best savings rates
Savings rates are on the rise after many years in the doldrums, with savers now able to bag deals paying more than 5 per cent.
But many people still have money languishing in old sub-1 per cent paying savings accounts.
Checking top rates is essential, but can also possible to make life easier to manage your savings pots in one place.
Over the past few years a number ofsavings platforms have launched, offering savers the option to switch as and when better deals become available and manage accounts from different banks and building societies.
They each work slightly differently and include their own exclusives. To find out more and check out what's on offer visit our specialsavings platform top rates tables.
You can also view our comprehensive best buy savings tables, independently curated by savings guru Sylvia Morris and the This is Money team.
Savings essentials:
> Compare best savings rates in our tables
> Check the best rates from savings platforms
> Sign up to Savings Alerts to get top deals sent to you
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