Created by: John Fitzsimons | 1 February 2019

How a regular saver can get you into the savings habit

Having a savings safety net in place is a really good idea. By building up a bit of a buffer, you are better able to deal with any sudden emergency spending that might come up - replacing a broker boiler for example - or deal with a change in circumstances, such as losing your job or falling ill.

However, large numbers of people in the UK have very little in the way of savings. A study last year from Neyber found that around 14% of people have no savings at all, while over a third have less than a month’s salary saved up just in case.

If you want to get yourself into the savings habit and build a bit a rainy day fund, then an excellent place to start is with a regular saver.

What is a regular saver?

A regular saver is a type of savings account that. As the name suggests, the account requires you to put money into it on a regular basis.

For example, a typical regular saver might allow you to save between £25 and £250 each month for a year. You will have to commit to putting money away each and every month.

In return though you will enjoy a pretty eye-catching rate of interest, currently around 4-5%.

That interest is paid at the end of the year. When the term of the savings account is up, the account closes and the money is moved into an easy access savings account from the same provider. At this point you can withdraw the money and spend it however you like, or move it into a different savings account.

The pros and cons of a regular saver

There are a couple of really big selling points to regular saver accounts.

The first is that they get you into the habit of putting money aside in savings each month. This is a big step for many people, and by demonstrating the benefits of saving something - even relatively small amounts - on a monthly basis, it will make it all the easier for them to put together a proper savings safety net.

Then there is the fact that these accounts pay genuinely impressive interest rates. It can be difficult to get too excited about the prospect of saving money at the moment, when most interest rates are so miserly.

For example, according to financial information site Moneyfacts, the average one-year bond in January paid just 1.48%, while things were little better with five year bonds, paying a typical 2.15%.

By contrast, the top regular savers are paying 5% interest, and you likely won’t have to pay any tax on that return.

There are some downsides to consider though. For example, regular saver accounts tend to have rather strict rules about making withdrawals before you hit the end of the term. As a result if your circumstances change and you really need to get your hands on the money you’ve been putting aside, you may struggle to do so.

In addition, you’ll need to remember to move your money off to a better account once the year comes to an end - in all likelihood the easy access account your money will be moved into will not be paying much interest, if any at all.

Will I pay tax on the interest I earn?

It used to be the case that the only way to enjoy interest-free returns on your savings was by putting that money inside an Individual Savings Account (ISA).

That has now changed though, with the government introducing a personal savings allowance. This means that you can earn up to £1,000 in interest from your savings without paying any tax on those returns if you are a basic rate taxpayer, falling to £500 a year if you are a higher rate taxpayer.

As a result, because the amounts that you can save in a regular saver are relatively small, the returns should be entirely tax-free.

Interest Regular saver Savings habit

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