Money Insider: Regular saver accounts ideal for those trying to get started
Even small balances can cope with surprise expense and avoid costly credit card route
Friday 14 June 2013
Whether it’s a rainy day fund, or a nest egg to help pay towards the cost of Christmas or the annual summer holiday, most of us strive to put some money aside.
Despite the low interest rates paid on the majority of bank accounts, saving money on a regular basis is a habit worth adopting and one which will stand you in good stead throughout your life.
Even a balance of a few hundred pounds will help if you are suddenly faced with an unexpected expense and will save you having to rely on costly credit cards.
However, for the majority of people the hardest part of saving is actually getting started.
We may have good intentions of saving some of our wages at the end of the month, but by the time we get there it’s often been spent elsewhere.
One of the best ways to overcome this issue is to set up a standing order so that your money is switched to your savings account the day after you get paid, that way it won’t be sitting around in your current account tempting you to spend it.
A number of banks and building societies offer a regular savings account and, although the interest rates are much better than bog standard savings products – in some cases two or three times higher – the terms and conditions are pretty strict.
Providers are able to offer higher rates on these accounts as they restrict the maximum amount you can deposit – typically between £25 to £300 per month rather than maximum balances of £1m-plus permitted with other savings products.
Most regular saver accounts don’t allow any withdrawals during the 12- month term of the account and you must also make a payment every month to qualify for the headline interest rate.
Although some may find the restrictive terms and conditions as a little off-putting, for others it helps to instil the financial discipline they need to stick to a regular savings routine.
If you’ve got a current account with First Direct you can get a regular saver account paying 6 per cent AER while HSBC offers the same rate for its Premier, Advance and Passport account holders.
Other deals worth a mention, and where you don’t need to hold a current account with the provider to qualify, include West Bromwich Building Society at 4.1 per cent, while Cheshire Building Society and Kent Reliance both pay 4 per cent AER.
Once you get into the habit and have built a savings pot, it gives you more options – for instance, you could choose to put your lump sum into a fixed-rate bond or an ISA while you take out a new regular saver for the following year.
Don’t fall foul of the insurance small print
Just because you’ve purchased an insurance policy, don’t assume that you’ll automatically be covered if something goes awry.
For example, with your car insurance, make sure you don’t underestimate your annual mileage calculation, because if you claim to be driving 10,000 miles each year yet in reality are driving twice that distance, don’t be surprised if the insurer throws out any claim you may make.
Similarly, when applying for home cover, in many instances you must state whether the locks on your front and rear doors comply with British “safety standard BS3621”. Not surprisingly, as in some cases you’d need to remove the lock out of the door to check, the question is often answered incorrectly. However, it could prove an expensive mistake because, if you suffer a break-in and it is subsequently found that the lock does not match the details on your policy, your insurer may reduce or refuse a pay-out.
Another important tip is to ensure you always report a theft to the police within 24 hours of the incident. Insurers will ask you for a crime number as part of the claim process. Failure to obtain a number could cast doubt on whether a theft has genuinely taken place and could result in a claim being rejected.
It’s not just in car and home insurance that you need to be aware of potential pitfalls which may invalidate a claim. Your travel insurance policy could be void if you suffer an accident after drinking alcohol when on holiday, even if you are not drunk, but try to claim for medical expenses.
The maximum you can drink and be safe in the knowledge that your claim won’t be rejected is below the UK legal driving limit.
The annual premium is the key factor for most people when they receive their insurance renewal, but a read- through of the individual cover and exclusions is equally important in the long run.
Andrew Hagger is an independent personal finance analyst from moneycomms.co.uk
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