Easy-access savings vs regular savings – where is your money better off?
We explore whether an easy-access savings or a regular savings account gives you the best return on your money.
Holly Thomas
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The art of saving is pretty straightforward, but to maximise your cash’s growth, you need to choose a savings provider and account type carefully.
Most cash savings accounts will be one of three types: easy-access, regular, or fixed.
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Alice Haine, personal finance analyst at Bestinvest, told MoneyWeek choosing an account “ultimately depends on an individual’s savings goal, savings style and how frequently they plan to access the funds.”
How does an easy-access savings account work?
An easy-access savings account does what it says on the tin – it gives you easy access to your savings.
Typical easy-access savers let you add to or withdraw your savings whenever you want, without any penalties.
The interest you earn is calculated from the total cash in the account. It is also variable, meaning your provider can change it at any time.
Most often, this will happen when the Bank of England lowers interest rates, which are at 3.75% as of the Bank’s February Monetary Policy Committee (MPC) meeting.
Easy access savings accounts can be great places to save money for a rainy day or to keep your emergency savings fund as you can earn interest on your balance but access the money at short notice.
That said, some providers are imposing more hidden restrictions on easy-access accounts despite a high headline rate that’s designed to lure you in.
Haine told MoneyWeek: “Read the small print carefully because some of the best easy-access deals might not be as easy-access as you think. There can be restrictions such as a limited number of withdrawals with a reduced savings rate applied for those that breach that limit.
“Other catches to beware of include accounts that offer a bonus rate, which applies for a limited period such as six or 12 months, before the interest paid drops substantially. There may also be eligibility requirements to secure a top rate, such as a saver opening a current account with the same bank.”
How does a regular savings account work?
Most regular savings accounts have a minimum payment you must put into the account each month. There are also often limits on the maximum you can pay in each month, and withdrawals are usually restricted or not allowed at all (without forfeiting the interest).
When comparing the interest rates offered by easy-access and regular savings accounts, you will often find that the highest headline rates come from regular savers.
The best regular savings account on the market at the moment pays 7.5% interest, much more than the 4.5% offered by the top easy-access account.
Plus, unlike easy-access rates, those on a regular saver tend to be fixed, giving you certainty on the interest you earn.
However, the rates advertised for regular savers are calculated differently from those advertised for easy-access accounts.
For regular savers, the advertised rate only applies on savings deposited for the full year, reflecting only the amount of interest you will get on the first month’s deposit. We will look at how this affects the amount of interest you earn later in this article..
A lot of regular savers also require you to be an existing customer of the bank, but that’s not the case with all accounts.
Haine told MoneyWeek: “For those with a fixed sum to save from their income every month, regular savings accounts can offer the highest rates on the market.
“The competitive savings rate often means the saver must abide by set terms and conditions, such as a cap on the amount that can be saved in the account, an agreed deposit each month and a limited number of withdrawals.”
Easy-access versus regular savings accounts
One of the most important things you need to understand when choosing between an easy-access and regular savings account is how the interest rate advertised applies to your savings.
An easy-access account’s advertised interest rate reflects how much your money will grow if you hold it there for a year, assuming the interest rate does not change during that time.
A regular saver’s advertised interest rate also reflects this, but because of the way money is deposited into the regular account, the interest rate is effectively lower than advertised.
The advertised rate will only apply to the first deposit you make into the account, and will be lower in real terms for each subsequent monthly deposit.
For example, if you paid £300 into a regular saver offering a 7.5% interest rate each month for a year, you will only realise 7.5% growth on that first £300 because that is the only portion of the total pot that will have been saved for the full 12 months.
The second £300 saved will only earn that 7.5% for 11 months, the third £300 for just 10 months, and so on. By the final month, your £300 will only earn 7.5% for one month.
Look at the table below to see how each extra payment earns less interest as you go through the year.
Months saved | Monthly payment | Total pot | Interest (top regular savings rate 7.5%) |
12 | £300 | £300 | £22.50 |
11 | £300 | £600 | £20.62 |
10 | £300 | £900 | £18.75 |
9 | £300 | £1,200 | £16.87 |
8 | £300 | £1,500 | £15 |
7 | £300 | £1,800 | £13.12 |
6 | £300 | £2,100 | £11.25 |
5 | £300 | £2,400 | £9.37 |
4 | £300 | £2,700 | £7.50 |
3 | £300 | £3,000 | £5.63 |
2 | £300 | £3,300 | £3.75 |
1 | £300 | £3,600 | £1.87 |
| Row 13 - Cell 0 | Row 13 - Cell 1 | Total | £146.23 |
In the above example, a total of £3,600 was put in the account throughout the year, earning £146.23 in interest from the regular saver at 7.5%.
If that £3,600 had been put into an easy-access saver at 7.5% as a lump sum for a year, it would have earned £270 in interest – much more than in the regular saver.
Furthermore, a £3,600 lump sum in an easy-access account at 4.5% would also outperform the regular saver, earning £162 over the year.
Therefore, while the top-paying easy-access accounts may have less attractive rates than the top regular savers on the surface, you may end up better off despite the lower advertised rate.
However, that is not to say that regular savings accounts should always be avoided.
Haine says regular savings accounts can “work better for people that want to get into the habit of regular saving, but are less effective for those that want to save a lump sum or make regular withdrawals”.
She added that consumers should be aware of the terms of their accounts as “some accounts allow access to the money but the interest rate may be reduced if you do make a withdrawal or if you don’t save into the account every month.
Is my money better off in an easy-access savings account or regular savings?
To work out whether your money is better off in an easy access or regular account, you need to weigh up the rate offered on each account, the amount you have to save and if you might need to access your money any time soon.
If you already have a lump sum, you could pay it into a competitive easy-access account and drip feed the maximum into a regular saver so you get the best of both worlds.
If you intend to save monthly on payday, perhaps, it comes down to the rate available and whether you need access to the money.
While the numbers using our examples above suggest you’d be better off with an easy-access account with a lump sum, it’s worth remembering that there is no guarantee that the headline rate will stay the same on an easy-access account, as it’s a variable rate.
On the other hand, some regular savings accounts offer a fixed rate for 12 months, which at least gives you certainty on what you will earn.
Our average savings by age article explores how much money different groups of people have put aside.
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