Santander launches market-leading 8% regular savings account – is it worth it?
Santander is offering new and existing customers a regular savings account paying an 8% interest rate – but how does the account compare to others on the market?
Santander has launched a market-leading regular savings account which pays an interest rate of 8%.
The account is open to new and existing customers with a qualifying Santander current account, including: Santander Everyday, Edge, Edge Student, Edge Up and Explorer.
The Everyday and Edge Student current accounts are fee-free while the other three charge up to £17 a month.
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You must be 16 or over and live in the UK to apply for the regular saver.
Customers can open Santander’s regular saver with just £1 and save up to a maximum of £200 every month.
The 8% interest rate includes a 5% bonus for the first 12 months. After 12 months, it falls to 3%. The interest rate is variable meaning it could go up or down at any point.
Money can be withdrawn from the account anytime penalty-free.
Jessica Sheldon, MoneyWeek's deputy digital editor, added: "While an 8% interest rate is certainly eye-catching, restrictions on monthly contributions mean savers might not end up with as much interest as they think they would with a regular savings account, so it’s worth considering whether it’s the best option for you.”
“It’s a good idea to regularly check the best rates for savings accounts, and set a reminder to review the account once a bonus rate period ends.”
How does Santander’s regular savings account compare to the rest of the market?
When it comes to headline interest rate, Santander’s regular savings account pays the most on the market as of 23 June.
The next best account in terms of rate is Zopa’s regular saver paying 7.1% interest, followed by The Co-operative Bank’s regular saver paying 7%.
However, you could earn more interest with The Co-operative Bank’s regular saver as it lets you add £250 into the account each month.
Assuming you added the maximum £200 into the Santander regular saver each month, didn’t withdraw any money and the interest rate stayed the same, you could earn £104 in interest over the course of a year.
But, if you paid the maximum £250 per month into The Co-operative Bank’s regular saver, you could earn £114 over the year, assuming no withdrawals or changes to the interest rate.
Is a regular savings account the best option for you?
Regular savings accounts may not be as attractive as they seem, as the headline interest rate only applies to money that is saved for a whole year – meaning the first month’s deposit.
The second month’s deposit is only in the account for 11 months of that year, so you only earn eleven twelfths of the interest rate.
Therefore, on average, you’re effectively getting half the headline rate advertised.
This means, if you already have a lump sum, you could get more interest by putting the money into an easy-access or fixed rate savings account instead.
For example, you would get £104 in interest by drip-feeding £2,400 into Santander’s regular savings account over 12 months, based on no withdrawals being made and the interest rate remaining at 8%.
However, if you added a lump sum of £2,400 into the top-paying easy-access savings account, currently Chase which pays 4.5%, at the end of the year you would have earned £110 in interest.
