Regular Savings Account UK in 2020 – Full guide with everything you need to know!

By | Last Updated: 17th September 2019 | This post may contain Affiliate Links

Looking for a Regular Saving Account in the UK? These types of accounts can be a popular choice in England, normally you’ll ‘commit’ to saving a certain amount each month. In return for this commitment, your bank or building society gives you a higher interest rate than a normally savings or current account.

Before you open a UK regular savings account, you should consider your personal situation and think about whether its correct for you. ‘Normally’ this form of saving can be also known as ‘regular savers’ or ‘monthly savers’, it might be good for you if you don’t have a ‘lump sum’ to invest.

You’re planning to save for a specific event or thing, such as a new car, holiday or a wedding. You would like more interest than with a current or ordinary savings account. Equally it can also be good if you want to get into the routine of regularly saving.

Remember there’s lots of different providers to choose from, this includes most UK banks and building societies, as well as independent providers.

How do Regular Savings Accounts Work in the UK?

It’s important to read all terms and conditions before ‘signing up’, this is because different accounts from different providers can work in different ways. Not all savings accounts are the same. For example, most providers will make you pay into the savings account every month, this can normally be a low amount such as £10 to higher amounts such as £500. Equally, it can be somewhere in between, normally you can decide the amount you want to save.

Sometimes you may have to commit to a ‘minimum number’ of payments, this can range massively from each provider. Some may stipulate 12 months of payments, others may require a longer period.

If you’re planning to save with your ‘current’ bank or building society, you’ll normally no issues with being accepted for a savings account. You may run into problems if you’ve got a bad credit history, missed payments and so on. If you plan to open a UK savings account with a provider which is not your usually bank, you’ll most likely need to open a ‘current account’ with them first, before you can qualify for a savings account. However, of course this does vary and is not always applicable.

Remember if you’re opening an account with a new provider, you’ll normally need to pass their security checks, this may include a credit search and you’ll need to confirm your identity. Usually this is done by using a UK passport, birth certificate, driving licence, utility bill and so on.

Does tax need to be paid?

In some cases, the answer is ‘Yes’, however this depends on your own individual circumstances. For example, before April 2016 taxpayers have their tax ‘automatically’ deducted on the interest they received on their savings. This was at a basic rate of 30%. Though in April 2016 a new personal savings allowance was introduced by the UK government.

Here’s what changed:

  • Basic rate tax payers can earn up to ‘£1,000 interest’ on their savings WITHOUT having to pay tax.

  • Higher rate tax payers can earn up to £500 worth of interest tax-free.

  • Anyone who earns more than £150,000 a year, does NOT benefit from the personal savings allowance.

  • Any interest exceeding your allowance is accountable to income tax.

Of course, this is to be used as a ‘general guide only’, if you’re unsure about your own tax situation, please contact an independent financial advisor for further guidance.

What are the Risks of Saving?

Most investments include some form of risk, some are ‘big’, some are ‘small’, this depends on your situation. Depending on the provider you choose, some will allow you to withdraw money, others will not. If you think you may need ‘access’ to your cash, select your provider carefully.

Normally at the end of your savings term, you’ll get all the money back you’ve invested into the account, plus any interest which has been accrued. Remember the interest rate might be ‘reduced’, if you don’t save every month or if you need to make a withdrawal. This can easily affect your potential earnings, equally there may be ‘penalty charges’ for missed payments and withdrawals. Please read your providers’ documentation and conditions to see how this may apply to you.

Is it Safe?

In most cases the answer is ‘Yes’, you should save with a UK bank or building society which is authorised by the Prudential Regulation Authority, these are protected by the FCSC (the Financial Services Compensation Scheme). The scheme has an upper protection limit of £85,000 for single accounts and £170,000 for joint accounts. This is on a ‘per authorised firm’ basis.

This where it gets a little tricky to understand. A ‘per authorised firm’ doesn’t necessarily mean every account you hold is protected. If your bank is part of a larger banking group, the group is generally the ‘authorised firm’.

For example, let’s say there’s a banking group called XYZ Banking, this group owns three ‘individual’ banks called Bank X, Bank Y and Bank Z.

Your main bank is Bank X which has £85,000 in a single account. However, you also have an account in Bank Y, this has £15,000 in. So, in total you’ll have £100,000 in Banks X and Y.

Though, because these two banks are part of the XYZ banking group, the protection limit is on a ‘per authorised firm’, therefore if the XYZ Banking Group went out of business, you’d lose £15,000 under the Financial Services Compensation Scheme as only £85,000 would be protected.

However, if you moved the £15,000 from Bank Y to another ‘independent bank’, which is NOT owned by the XYZ banking group. The Financial Services Compensation Scheme would cover the £85,000 in Bank X and the £15,000 in your other bank, should they both go bust, meaning your whole £100,000 would be protected.

You can find out which banks are part of which authorised firms on the official Bank of England Website.

If you’re still unsure how this might affect you, please seek an independent financial consultant or advisor for individual situation analysis and guidance.