Making the most of regular saving accounts

Banks know that eye-catching time-limited rates are a good way of signing up customers. But as Sarah Moore explains, it can pay to switch.

The British public's apathy when it comes to changing bank accounts means that banks can hold onto many of their customers regardless of what they offer them. Hence the popularity of regular savings accounts, which offer a high rate of interest for a limited period of time.

Banks know that these eye-catching rates are a good way of signing up customers, many of whom will let their savings go the way of a discounted Netflix subscription or gym membership you set it up with the intention of reassessing when the special offer ends, but never get round to it and find yourself years down the line with something that's no longer what you need.

There are plenty of these accounts to choose from. Indeed, last week saw the launch of a new one from Santander, which pays 5% interest. That puts it on a par with other decent rates from Nationwide and TSB, while First Direct, HSBC and M&S Bank all pay up to 6% (HSBC pays a lower 4% to customers who don't hold one of its Premier or Advance accounts).

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In all these cases, the initial interest is paid after the year is up, and customers are then rolled into another type of account. The subsequent drop in interest is drastic: Santander's account pays out just 0.25% after the initial 12-month period, while other accounts fall as low as 0.05%.

Despite this, they can still be a good way for shrewd savers to make the most of their money, as long as you remember to switch when the initial rate ends. But you'll have to jump through some hoops.

First, you almost invariably need to have a current account with the relevant bank to open a regular saver with it. You're allowed to have more than one current account, but you may need to meet minimum requirements, such as paying in a certain amount per month or setting up a couple of direct debits.

Second, as the name suggests, you have to deposit a certain amount of money into the regular saver each month. Most accounts set out both minimum amounts (typically around £20-25 per month) and maximum amounts (which range from £200 to £500).

Third, many of these accounts don't allow withdrawals before the 12-month term is up and may penalise early closure, so they are not suitable for cash you might want to access quickly. That said, some offer greater flexibility, both in terms of withdrawing money or skipping payments, so check the terms carefully.

Fourth, remember that the rate only applies once money is in the account. Say you contribute £250 per year to a 5% regular saver. You'd pay in £3,000 in total, but if you're expecting £150 in interest (5% of £3,000), you'll get a shock the actual amount will be roughly £75 (because your average balance throughout the year is £1,500). It may sound obvious, but this is a common misunderstanding. So if you have a lump sum, you might want to put it in a normal account that pays the highest rate you can find, then drip feed it into a regular saver to maximise your interest.

Finally, set a reminder for when the 12-month period is over, so you know when to move your money elsewhere.

Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.