Are Regular Savers worth the faff?

Both First Direct and HSBC offer Regular saver accounts with current rates of 6%.  There are terms to make you work for this yield of course.  With First Direct you have to hold a current account with them and pay in £1,000 per month (to waive the monthly fee) and with HSBC you need to hold an Advance account (which you need to pay in £1,750 a month into to qualify for).

AND you can’t access your money for a year, if you want the interest.  Bastards.

What’s the benefit?
I could if I was so inclined, max out both regular savers.  £250 for HSBC and £300 for First Direct, for 12 months each, by transferring cash from current cash savings into the regular savers.

The bulk of my cash savings are currently in the Santander 123 account, earning a nice 3% interest.  Which if the current reports on inflation are to believed, it is about a 1.8% real return after tax.

So I can drip feed the regular savers from current savings.

The difference in interest earned on a 6% regular saver and a 3% normal account isn’t going to be quite double, as the contributions won’t be in the higher interest account for a full year.  If we consider it in monthly chunks of £550, so both the HSBC and First Direct regular savers.  The first £550 will get a years worth of 6% interest.  The second £550 will get a month of 3% interest and then 11 months at 6% interest.  The third will attract 2 months of interest at 3% and then 10 months at 6%.  And so on.

The total interest earned is £303 (4.69%) when drip fed into the Regular Savers from the 3% account, or if the £6,600  was left at 30% it is £198.  This is an extra £105 across the year with no tax deducted.  Or approximately £84 after 20% tax or £63 after 40% tax.

What’s the faff?
Faff Factor 1 – Applying.  Let’s say online forms fill you with rage and suspicion.  So it takes half an hour to apply for each account.  £84/£63 isn’t bad for an hours ‘work’.

Faff Factor 2 – More accounts.  Another two accounts to keep track of.  If you bank with either already, then less faff.  If they are both new and it involves transferring money about each month and remembering two new internet banking ID’s then the faff factor is building.  The amount of money I have pinging about between accounts would please a Cuban drug lord.

Faff Factor 3 – Reduced Liquidity.  Not strictly true as you can access your savings at any time, but you forego any interest earned.  As long as you have other savings then this is pretty insignificant.

Because you’re worth it?

£60+ for less than hours work makes it worth it for me.  It does bring in another couple of accounts, but it’s free money so why not?  I’ll take the small easy wins.  They all add up.

Mr Z

13 thoughts on “Are Regular Savers worth the faff?

  1. Dividend Drive

    Very good point, Mr Z.

    I have looked at regular savings in the past but the conditions almost invariably make it unattractive. In the end, I put about £2000 in a peer-to-peer lending account. All told, I am receiving about 5% interest rate though this was much higher until recently. Obviously, it is more risky than a savings account but that is why I only have £2000 in it. It is much easier to get the money back if an emergency arises which is a blessing.

    Santander's account looks very attractive. I nearly went with them when I changed bank accounts about a year ago. However, in the end I went with Nationwide. I am very happy with the choice to be honest. Also a 3% account (for a year only, admittedly, then 1%). I just wanted to be out the "banking" system for a little while!

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  2. Living cheap in London

    I run both the First Direct & the 1-2-3. With the first direct i just roll the same cash over each year in perpetuity. I jump my salary earnings through the current account to hit the "input" limit.

    With the 1-2-3 I keep the account close to the maximum (20K) allowed to get the 3% interest maximised, plus run all the cashback deals through it. I kind of figure the interest is paying in full for my Thames water bill – one fixed cost item ticked off the FI list!

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  3. weenie

    Hi Mr Z

    I bank with First Direct so use the Regular Saver, although I've not maxed to the full £300 per month as the rest of my money goes on investments. At the end of the term, all the cash + interest gets whipped out and invested and I start the Regular Saver plan all over again.

    I guess I could make this work better but I don't have so much cash lying around in current accounts to 'recycle'. However, I pay off my car in a few months time so can up my savings and max out next year, when interest will be tax free as it'll fall under the £1k total.

    Like DD, I have a couple of grand in peer to peer lending and whilst I'm unlikely to put any new funds into this, I'm happy to let capital and interest get reinvested for now.

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  4. Mr Zombie

    5% seems pretty good, but I have no feel for how risky P2P really is.

    Although with bonds still looking unattractive it maybe time for an experiment soon!

    Santander seems fine (and the cash back on the account and the credit card is ok too)

    Mr Z

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  5. Mr Zombie

    Good work! Like me, you will look like some money laundering maniac to the bank.

    Yeah, with the cashback and interest it does add up! Ticking it off against a bill is a great idea. That would be a couple of curries a month….or the electricity bill is probably a better idea!

    Mr Z

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  6. Mr Zombie

    Woohoo – good work on paying off the car!

    The Regular savers are pretty good if you have a little bit of cash lying around. And the First Direct one is a little more flexible, isn't it?

    Any feel for how risky P2P is?

    Mr Z

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  7. Dividend Drive

    When I first put money into P2P I was getting a rate of about 6.5%. Interest rates have dropped since it gained greater popularity.

    We will not know the risk rate really until things go pear shaped again. The default rate–even during the height of the financial crisis–was not too high.

    Yes, I have started actually following the bond/gilts rate recently. Hopefully with interest rates looking to go north soonish we will see better bond rates. I would like to have a little gilt ladder in place at some point!

    The Santander account is very good. Nationwide's cashback credit card is pretty good as well (0.5% on everything). Though not quite as good as Santander!

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  8. weenie

    Thanks – it will feel very good to pay it off!

    I weighed up the risks of P2P and dipped my toe in by investing £2k – that's probably as much as I will risk with my own cash. For someone who's more risk averse and just wants to check it out, you can try with very small amounts, eg with Ratesetter, you can open an account with £10, and lend it out for a month (currently showing at 3%). After a month, you can just withdraw your cash (plus the interest) if you want. As well as Ratesetter, I also use Funding Circle where some of my loans are lending out at over 11% – yes, higher risk but average loan amounts are around £20-£30,so if a particular company I had loaned to fell over, that would be what I could potentially lose. So far, I've suffered no losses.

    If you're interested, I'll be doing a post on my P2P experience next month as it will have been a year since I started out.

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  9. Mr Zombie

    True and, amazingly, the last crash is now 7-8 years behind us!

    Yes! A ladder would be very nice. Saving hard with interest rates low, then having lots of capital and primed to go FI just as rates rockets could be good. Although that would probably mean sky high inflation as well…

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  10. Mr Zombie

    I will be reading that post for sure! Definitely of interest 🙂 11% is pretty high.

    Perhaps, after reading your article, I will start my own experiment.

    Mr Z

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  11. EarlyRetirementGuy

    Personally I dont bother with any of these style accounts with often weird and wonderful hoops to jump through in order to get an extra x% interest. I recieved £125 for opening my 1st Direct account and that's me done. I don't want to take the risk of costs involved should 1 of the many required direct debits or standing orders fail.

    I can see why some people do play their games and make a few hundred quid off it each year.. but personally I'd rather invest the time and effort elsewhere.

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  12. Mr Zombie

    Hey ERG,
    Haha yeah, they love making you sign up to certain conditions. "You must open this account on the first day of the month, go paperless and shriek at the moon like a banshee to qualify for it."

    I see it as a boost to the 'risk-free' part of my savings that does take a bit of admin to sort out. But the regular savers do take about 10 minutes each and it's all automated.

    Mr Z

    Reply

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