New savings account offers 8% AER – what's the catch?

Santander's new regular saver account offers an impressive 8% AER for the first year. So is it worth opening?

It's currently the best deal on the market, and the account certainly sounds appealing – but there are caveats, and the generous headline rate shouldn't be taken at face value.

Here, we explain the pros and cons of Santander's account and reveal the other products that could be worth considering.

What does Santander's regular saver offer?

The account, which allows unlimited withdrawals, has a variable rate of 8% AER. That's almost three times the current inflation rate and is the highest-paying regular savings product on the market.

However, there are a few catches to be aware of, and lots of terms you'll need to stick to.

For starters, the headline figure includes a bonus rate of 5% for the first 12 months. After that, it drops to 3%. 

The account is also only available to customers who open a Santander current account, including its Everyday, Edge, Edge Student, Edge Up and Explorer products.  

As with all regular savers, there are limits on how much money you can add to your savings pot. While you can open the account with just £1, the maximum you can save is £200 a month.

• Find out more: how to find the best savings account

How much interest could you earn?

Due to the way regular saver accounts work, the amount of interest you earn might be more modest than you'd expect. There's a limit on how much you can pay in each month, so you'll only earn interest on relatively small sums of money for most of the year.

For example, let's say you save the maximum £200 a month into Santander's 8% account, you don't take any money out, and there's no change in the variable rate. After one year, your money will have grown by £104, bringing the total amount saved to £2,504. 

If you saved the same amount in the best instant-access account paying 5% AER, you'd end up with a nest egg worth £2,465. That's £39 less. 

But because Santander’s rate falls to 3% after a year, savers could earn more in a top instant-access account if rates stay where they are. Over two years, your pot would grow to £5,018 in Santander’s regular saver, compared with £5,050 in a 5% instant-access account.

• Find out more: what are the different types of savings account?

How do other regular savings accounts compare?

This table shows the top rates for regular saver accounts, including the new deal from Santander:

Compare savings accounts

Find the right savings account for you using the service provided by Experian Ltd

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As you can see, Santander has the best rate, offering significantly more interest than the nearest competition. 

If you're looking for more flexibility, there are several other products on the market that aren't listed in our table that have no restrictions and offer rates as high as 6%. Monmouthshire Building Society's regular saver, for example, is available to everyone.

Who are regular savers best suited for?

Regular saver accounts can be great if you don't have much cash saved already but want to start saving regularly and get a return on your money. Signing up to save something every month means you're more likely to carry this on in future.

However, many regular savers don't allow withdrawals, so think about whether you can do without this money until the term is up. If not, an instant-access account could be a better bet.

If you already have a significant sum of money to lock away, you'd be better off opening a fixed-term account. The current top-rate one-year fixed-term savings account is from MBNA and pays 4.85% AER.

• Find out more: best savings accounts 

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4 ways to make the most of regular savers

If you want to get into the habit of saving each month, a regular saver product may be right for you. Here are some simple ways to make the most of the account:

1. Fixed or variable?

There are two types of regular saver accounts: fixed-rate and variable. Fixed-rate deals offer higher interest rates but have more restrictions. 

Variable deals are usually more flexible – for example, they're less likely to have limits on withdrawals. However, the rate is subject to change. 

2. Check with your bank for deals

Many banks offer loyalty-based regular saver accounts that are exclusive to current-account customers. Make sure you're not missing out on accounts offered by your provider. 

• Find out more: best bank accounts 

3. Open more than one

If you're eligible, there's no reason why you can't maximise your savings by opening more than one regular saver account. Just make sure you can afford to pay in the required amount of money to keep them open. 

4. Switch after maturity

Regular saver accounts usually mature after one or two years. After this, you'll probably be moved to a standard savings account that pays a much lower interest rate. So, remember to move your money to another top-rate account once the term is over.

• Find out more: how to switch your savings account