He also spoke about some of the ‘highest’ rates you can get
Martin Lewis has spoken out to clarify a common misunderstanding about savings accounts. He said he often gets angry messages from account holders who feel short-changed over the issue.
Savers opening high-interest regular savings accounts are frequently disappointed by their payouts due to a common miscalculation. Addressing listeners on his BBC podcast, Mr Lewis explained how many high street banks like offer these lucrative accounts.
These are accounts where you pay in up to a certain capped amount each month, enjoying a relatively high interest rate. You can open one with big name providers such as Lloyds Bank, Santander, and Nationwide Building Society, with rates up to 8 per cent on offer.
Less than you expect
But you might find yourself being paid only half of what you initially expected. The point of confusion stems from how interest is applied to money deposited over time rather than a lump sum up front. Mr Lewis said: “Regular savers always pay people less interest than they’re expecting.”
He gave the example of an account paying 6 per cent where you pay in £250 a month, so you deposit £3,000 a year. You may think this means you will pocket £180 of interest. Mr Lewis said: “What people forget is that they’re working out 6 per cent on £3,000, but they’ve been drip-feeding the money in over the year, and in the first month, they only had £300 in, so they just got 6 per cent on £300.”
How to calculate your interest earnings
He went on to explain how to get a rough estimate of your interest earnings. Mr Lewis said: “The best way to think about it is, count the money halfway along, if you’re maxing it, which in this case, if it’s £3,000, would be about £1,500, and then think 6 per cent of that, and that’s roughly how much you’re going to get out.”
For example, Nationwide Building Society offers a Flex Saver paying 6.5 per cent. If you put in your £200 each month to get maximum interest earnings, you would not earn 6.5 per cent of £2,400, which is £156. Instead, you would be paid just over half this amount, receiving £84.50.
Ensure our latest banking news headlines always appear at the top of your Google Search by making us a Preferred Source. Click here to activate or add us as Preferred Source in your Google search settings.
Despite this common confusion, regular saver accounts still boast some of the highest headline interest rates available on the market. Mr Lewis said the rates on offer are typically “the highest you can get”.
What are the highest paying reguler saver accounts?
Current top regular saver rates you can get with the major banks include:
- Santander: 8 per cent variable (Up to £200/month)
- First Direct: 7 per cent fixed (Up to £300/month)
- Co-operative Bank: 7 per cent variable (Up to £250/month)
- Nationwide Building Society: 6.5 per cent variable (Up to £200/month)
- NatWest: 5.25 per cent variable (Up to £150/month)
- HSBC: 5 per cent fixed (Up to £250/month)
- Lloyds Bank: 5 per cent fixed (Up to £250/month).
Many local building societies also offer regular savers with similarly competitive rates.
