Savers can earn more interest in regular monthly accounts than in tax-free cash Isas

By Sylvia Morris

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Savers willing to put money aside each month for a year can earn more interest on taxable accounts from banks and building societies than in an Isa.

Regular savers can earn up to 3.28 per cent after tax (4.1 per cent before) for 12 months with the West Bromwich BS — and as the rate is fixed, you are not in danger of seeing your payout cut.

This is better than you can earn on a tax-free cash Isa where the top deal is a tax-free 2.3 per cent from Cheshire BS’s Isa Saver Issue 3.

Cash in hand: Regular savers can earn up to 3.28% after tax for 12 months with the West Bromwich

Cash in hand: Regular savers can earn up to 3.28% after tax for 12 months with the West Bromwich

It also outstrips standard easy access taxable rates, where the best is 1.36 per cent (1.7 per cent) with Derbyshire NetSaver Issue 11.

But you won’t earn the top rates if you don’t comply with the exact terms and conditions. Some accounts let you make withdrawals or miss payments.

With others you end up earning a derisory rate if you make more withdrawals or miss more payments than they stipulate. And in some you can’t make any withdrawals at all.

 

West Bromwich BS’s leading branch-based Fixed Rate Regular Saver, minimum £10 a month, pays 3.28 per cent (4.10 per cent) fixed for a year.

You can’t make any withdrawals and must make at least ten regular payments during the year — or you earn just 0.4 per cent (0.5 per cent). The most you can put in is £250 a month.

Barclays Bank’s Monthly Saver is more flexible. It pays a fixed 2.6 per cent (3.25 per cent) on savings of between £20 and £250 a month. You can make withdrawals from your account, but you will earn a lower rate of 2.42 per cent (3.03 per cent) in any month you do.

Norwich & Peterborough BS pays 2.4 per cent (3 per cent) including a 1.2  (1.5) percentage point bonus for the first year on between £1 and £250 a month and allows you one withdrawal without losing the bonus.

At Bank of Scotland, the rate is 2.6 per cent (3.25 per cent), but there is a twist. You need to run a current account with the bank to open its Monthly Saver. You can make withdrawals at any time, but won’t be able to replace the money as you can pay in only once a month.

Even better deals are on offer for those with a current account with HSBC or First Direct.

If you have a First Direct First Bank account, you earn 4.8 per cent (6 per cent) on savings between £25 and £300 a month.

With HSBC, it is 3.2 per cent (4 per cent) or 4.8 per cent (6 per cent), depending on the type of current account you have with the bank.

Cheshire, Derbyshire and Dunfermline building societies, all brand names of Nationwide, have Platinum Monthly Saver Issue 7 at 3.2 per cent (4 per cent) until April 30, 2014, on between £100 and £500 a month.

But this rate is variable, rather than fixed, so could be cut. You earn only 0.4 per cent (0.5 per cent) if you miss more than one monthly payment or make more than one withdrawal.

Move your money after a year or you are likely to end up with a paltry rate of interest.

For example, with Bank of Scotland you are transferred into its Access Saver account paying 0.4 per cent (0.5 per cent).

Barclays also transfers you into a low-paying easy access account. A £100-a-month saving at 3.28 per cent  (4 per cent) will build up to £1,226 before tax or £1,221 after tax over 12 months.

You don’t earn the full rate on the whole of your £1,200 savings. Rather you earn £4 before tax for the year on the first £100  you put in as this is  in the account for  12 months.  

But your next £100 is in the account for only 11 months so will earn 11/12 ths of this — or £3.66. On your final £100, which has been in the account for only one month, your interest is  just 33p.

As a rough calculation, you earn half the advertised rate on your full savings — roughly 2 per cent on £1,200, which works out at £24.


The comments below have not been moderated.

Problem with the regular savings account is that whilst the rate is 4.1 in real terms the amount you save after the 12 months means that the return rate is only 2.05%. For example £100 a month savings results in the annual interest on the £1200 will be averaged out at £24.60 interest before tax.

Click to rate     Rating   3

Please adhere to your own House Rules, e.g. Rule No. 5 in this occassion, where the Bank of Scotland rate as stated above at 3.25%gr and 2.6% net was actually pulled on 21st May, which is prior to this article being published. This article has caused several clients to contact myself regarding the above mentioned product and rate, so please ensure the information is factually correct at time of publishing to avoid mis-leading customers. Thanks Chris

Click to rate     Rating   1

Rigsby - You are bloody nearly right - as picture is pretty much the monthly net interest on 100k for a high rate taxpayer!

Click to rate     Rating   1

I've given up on ISAs. the tax benefit is taken by the bank in low interest rates. Buy To Let for me.

Click to rate     Rating   2

DM your headline rate of 4.1% is only for A MAXIMUM of £3,000, how much have you been paid to promote the West Brom building society ?

Click to rate     Rating   12

Yes that about says it all!, bankers get bonuses of billions while savers are shown a handful of coins.

Click to rate     Rating   8

Most regular savers are for one year and many rates, particularly the higher ones, are variable. Apart from the effort and non-compounding of balances, ISA allowances should be used first. If you (can) put in this year's ISA allowance of £5760, you will save tax not just this year but every year if you do not withdraw funds, and if not significant now, benefit from compounding when rates eventually improve. But cash is only one asset class, and if you can think longer-term, you should be diversifying.

Click to rate     Rating   13

This of course, is nonsense if you have a lump sum to invest in an ISA. £3000 in WB at £250 a month at 3.28% will return £54 which is an overall yearly rate of 1.8%. Put the £3000 into the 2.3% account and (as long as the rate stays the same), you get £69. So it is only worth it if you can only afford to filter some in per month, rather than use a lump sum.

Click to rate     Rating   21

too much effort for £24

Click to rate     Rating   18

Pictured, the average interest payable on £100,000

Click to rate     Rating   2

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