A charmed two years for Lloyds savers

Lloyds TSB has fired another shot in the battle of the high-street banks with last week's launch of a regular savings account paying 8 per cent interest for two years.

Although the bank is a late entrant to the market for high-interest regular monthly savings accounts, it has won plaudits for the length of the offer.

"The headline rate of 8 per cent - while not market leading - is unquestionably very appealing, especially when combined with the fact that it is available for two years instead of the usual one," says Stuart Glendinning of the price-comparison service Moneysupermarket.com.

Although the bank has dubbed the offer a "no strings" account, there are in fact a number of restrictions to watch out for.

You can pay in up to £750 at the outset, but from then on your monthly contributions are limited to between £25 and £250.

And although, unusually for a regular-saver deal, you can get your hands on your money whenever you want, any withdrawals or missed monthly payments cannot be replaced.

Further, you need to hold your current account with Lloyds TSB - although unlike some financial institutions, it offers its regular saver to both new and existing customers.

Interest is paid once a year - on the anniversary of the account being opened - and a customer making the maximum contributions over two years can save £6,500 and earn £594.68 interest, claims Lloyds TSB.

Sue Hannums at Chase de Vere, an independent financial adviser, says savers can open a current account at Lloyds TSB with just £1 - and then take advantage of the 8 per cent regular saver.

"For a basic-rate tax- payer, this beats the rate paid on some [cash] individual savings accounts [ISAs]," she adds.

But Ms Hannums reminds savers that interest isn't paid on the whole lump sum put in over the year, but calculated pro rata as the money is paid in.

This means that while the first month's deposit earns 8 per cent for a year, the second month's deposit will earn this rate for 11 months, and so on.

Although Barclays and Alliance & Leicester pay 10 per cent for one year on regular-saver accounts, many savings specialists prefer the Halifax deal paying 7 per cent on regular contributions of between £25 and £250 a month for a year.

"The advantage of [the Halifax] account is that it is not restricted to current account customers but open to everyone," adds Mr Glendinning.