HSBC and its digital sister bank First Direct have both slashed their popular regular savings rates from 5 per cent to 2.75 per cent.
The move means that M&S Bank – also partly owned by HSBC – is now the only provider offering 5 per cent interest to savers who have their current account and want to put a regular amount away each month.
Such accounts are a perfect starting point for savers setting aside small amounts each month to get in the habit. Aside from M&S, the next best rate is from Virgin Money, which offers 3 per cent.
The rate chop will leave many wondering whether regular saver deals are still worth it and whether we could be seeing the death of this type of account altogether.
Reduction: Both First Direct & HSBC have cut their regular saver rates from 5% to 2.75%
Up until 2016, First Direct offered an even higher 6 per cent rate on a regular saver.
According to experts, the mortgage market could be to blame for the recent chop.
Andrew Hagger, personal finance expert at Moneycomms, said: ‘The banks have little appetite for customer savings at the moment.
‘The other problem is that mortgage rates have been falling due to competition in the market so if banks lend at lower rates but don’t trim savings rates then their margins and profits take a hit.’
He adds: ‘Nationwide building society also scrapped its 5 per cent regular saver account earlier this year – the only 5 per cent deal left is with M&S Bank although I do wonder how much longer this will be available.
‘Regular savings accounts are a good product- especially for people who are looking to build a savings pot for the first time – these accounts can give them the discipline to put money aside each month and adopt the savings habit.
‘The whole savings market is seeing rates drift lower and unfortunately regular savers are part of the current cull.’
First Direct customers can still save between £25 and £300 a month into their regular saver account – totalling £3,600 a year.
Meanwhile, HSBC and M&S Bank customers can both save between £25 and £250 a month – up to an annual total of £3,000.
As with most banks, customers can only open regular savings accounts with these institutions if they hold a current account with it.
|Coventry Building Society||2.5%|
|Bank of Scotland||2%|
Why are they popular?
Regular savings accounts are popular as they let people put money away on a regular basis, with most users committing to a certain amount each month with interest paid at the end of the year.
In return, banks with the accounts typically offering higher interest rates than standard easy-access accounts.
However, they do tend to have more firm terms and conditions in place, for example, limiting the number of withdrawals you can make or requiring you to make a deposit every month.
Another issue is that some customers do not earn as much interest on their savings as they believe they will, due to the fact the majority of the money is deposited for less than a year.
Anna Bowes, co-founder of Savings Champion, said: ‘If you don’t have a lump sum to deposit you can always save a regular amount into a normal easy-access or notice account.
‘However, regular savings accounts often pay some of the best rates of interest available as the amount that can be deposited is normally restricted and the term is usually around 12 months.
‘And if you set up a direct debit to pay into a regular savings account as soon as you are paid, it can become another bill – but one that you will benefit from in the future.
‘Savings rates across the board have been falling recently and the competition in the best buy tables has waned – so although disappointing it’s not wholly unexpected to see these headline rates of 5 per cent being reduced.
‘Although these particular regular savings accounts are only available to those with a current account with that provider, such attractive rates may have helped pique potential savers’ interest in putting money away for their future.’
Rate chop is ‘no surprise’
James Blower of the Savings Guru added: ‘The reductions seem to have surprised many, however the moves were inevitable in my opinion.
‘HSBC – which also owns First Direct – were the last current account provider to hold out with such attractive regular savings rates and I suspect they were simply no longer justifiable or sustainable.
‘Although the cuts are huge, they still leave them placed joint sixth in our tables so still very competitive.
HSBC – which also owns First Direct – were the last current account provider to hold out with such attractive regular savings rates and I suspect they were simply no longer justifiable or sustainable.
James Blower – the Savings Guru
‘The big shock is that M&S Bank didn’t follow suit, as this is also part of the HSBC Group.
‘Savers looking for alternatives should consider Saffron Building Society (for postal accounts), Virgin Money (for internet) and Kent Reliance (branch based) which all pay 3 per cent.
‘These all beat the best rate on the market which is the 2.36 per cent paid by United Bank on its five-year fix.
‘In terms of where rates are heading, we aren’t going back to the heady days of 6 per cent on one year and 7 per cent on five years seen in 2008 any time soon.
‘I don’t expect rates to fall any lower from here but all bets are off until Brexit is resolved.
‘On a positive note, there is a huge number of new banks looking to enter the market still, with over 25 actively at some stage of the process, which bodes well for savers going forward as it has been the new entrants who have provided savers with the best rates for the past six years.’
To help you decide which savings account could be best for you, take a look at our independent best buys savings tables.
THIS IS MONEY’S FIVE OF THE BEST SAVINGS DEALS
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