Flexible friends for small investors: Regular savings accounts enable depositors to grow their funds without making a long-term commitment. Conal Gregory reports

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The Independent Online
A decade ago, almost all building societies offered investors monthly savings accounts. They were ideal for those new to the savings habit, building funds for a specific and often short-term purpose, or for those without substantial capital to deposit.

Now, in the rush to produce postal accounts designed for large deposits, most societies have directed regular savers into Tax Exempt Special Savings Accounts (Tessas), which bring gross interest if you keep the money in for five years.

You can get your money before the five years is up, but it will mean paying tax on the interest. However, with Tessas paying high rates - most offer over 10 per cent gross - this is still a good deal.

Before committing yourself, check for early withdrawal charges.

Most societies allow investors to make payments by cash, post or through a standing order.

The Stroud and Swindon Building Society welcomes regular contributions to its Tessa from pounds 1 upwards after an initial minimum of pounds 100 has been paid. It pays 11 per cent, always at least 4 per cent above its paid- up share rate.

Investors can open a Tessa Elite account for as little as pounds 20 with the Lambeth Building Society. Regular monthly savings from pounds 20 to pounds 150 can be made in this account, which pays 10.7 per cent tax-free.

Many societies, such as the Britannia, pay 10.4 per cent on their Tessa schemes, although the Darlington offers one of the highest rates at 11 per cent, and requires an opening balance of only pounds 1.

Other Tessas with a pounds 1 minimum include those offered by Abbey National, National Westminster, Bank of Scotland, and the Newcastle, Northern Rock and National & Provincial building societies.

There are still a few accounts designed for regular savings. The Darlington's Pyramid account offers a generous 11.75 per cent gross interest (8.81 per cent net).

The Darlington portrays itself as 'a smaller saver's society' and does not impose high minimums. The Pyramid account, which may be opened by post or in person, allows monthly deposits of between pounds l and pounds 100 or up to pounds 200 for a joint account.

Monthly payments can be continued in the Pyramid account for three years. It can then either be closed and a new account started, or the balance can continue to attract the higher account rate. If at any time three monthly payments are missed, the balance will be transferred to an investment share account and interest paid at that account's rate.

A Pyramid account can be closed at any time without penalty. Children and other non-taxpayers can register for gross interest using form R85. This effectively turns the account into a Tessa without the five-year restriction.

Another special account for regular savers is offered by the City and Metropolitan Building Society.

This pays 9.5 per cent gross (7.12 per cent net) on monthly subscriptions of pounds 10 to pounds 500, the society calculating interest on a daily basis. It allows without penalty withdrawals of up to pounds 300 a day in cash at branches and some agencies, or up to pounds 1,000 by cheque from any branch.

For those saving up for the deposit on a first home, City and Metropolitan will pay the valuation fee provided that at least 5 per cent of the purchase

price has been invested in the Regular Savings Plus account and that it has been in operation for a year. City and Metropolitan also allows up to three non-payments.

The Darlington Building Society, 8-10 Tubwell Row, Darlington, Co Durham DL1 1NX (tel: 0325 487171). City and Metropolitan, 219 High St, Bromley, Kent BR1 1PR (tel: 081-464 0814).

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