Rates have been slashed on top regular saver accounts: where should you put your cash?

Last week saw First Direct and HSBC almost halve the interest rates on their market-leading regular savings accounts, from 5% to 2.75% AER.

While the long-standing accounts came with caveats, such as having to hold a current account, they were one of the few ways to access an inflation-busting interest rate without locking away cash for several years.

Anyone who had already opened the accounts will continue to get the original interest rate until their account's 12-month term is up.

But for other savers, M&S Bank remains the onlybank to offer 5% AER on its regular saver. But is it the best option for your money?

Which? reveals the best rates for regular savers, and some alternative homes for your cash.

What are the best rates for regular savings accounts?

The table below shows the top five regular savings accounts, organised by interest rate.

_{Source: Moneyfacts. Correct 10 October 2019, rates are subject to change.}

Some of these accounts seem to be from a bygone era; many aren't available online, or offered nationwide. But this is good news for those who don't like online banking.

The interest rate only lasts for a year, and drops if you fail to deposit at least the minimum amount each month, or make unauthorised withdrawals.

Only three accounts allow unlimited withdrawals, whereas some allow just a couple a year and others don't allow any.

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

Is this the end of tied bank account perks?

Many banks used to offer their current account customers exclusive accounts and special rates, in a bid to stop them moving elsewhere.

Most of the big banks still offer exclusive accounts to existing customers, but the deals aren't always great.

For instance NatWest's Instant Saver Account is only available to current account holders, and pays just 0.2% AER on balances up to £24,999. That's 1.44% less than the current top rate.

Similarly, Santander 123 World members can get better rates on things like its fixed-term bonds. Whereas most people get 0.7% AER for one year, 123 World members can get 0.8% AER for two years. Yet the current top rate two-year account in the market pays 2.32%.

At the smaller end of the market, Darlington Building Society offers a 45-day notice account exclusively to members who have held an account for at least three consecutive years. But with a rate of 1.4%, you could do just as well with an instant-access account.

Alternative ways to save

With loyalty no longer paying, you might want to consider moving your money elsewhere.

Instant-access accounts and Isas

Instant-access rates aren't as high as the most competitive regular savers.

However, if you've got a large lump sum you want to save, you could actually earn more interest over the year. This is because you can deposit all your money in the account at the start of the year, so it's earning interest from day one.

Regular saver accounts require you to regularly deposit smaller amounts, so you effectively earn half the interest advertised.

The three top-rate accounts across instant-access cash Isas and savings accounts are:

• Coventry Building Society Triple Access Saver, 1.46% AER: £1 minimum initial deposit; only three withdrawals allowed each year; after 12 months AER drops to 1.15%
• Coventry Building Society Limited Access Isa, 1.46% AER: £1 minimum initial deposit; only three withdrawals allowed each year; after 12 months AER drops to 1.15%
• Marcus by Goldman Sachs Online Savings Account, 1.45% AER: £1 minimum initial deposit; after 12 months AER drops to 1.35%.

Unfortunately, many top-rate accounts only enable a certain number of withdrawals per year without facing a penalty. Others include bonus rates, meaning the AER may drop significantly after the first 12 months.

High-interest current accounts

Some current accounts pay high interest rates for those who fulfil their caveats - you'll often have to pay in a certain amount of money each month, and sometimes set up a certain number of direct debits - in essence 'proving' you're going to use it as your main current account.

The top rates are:

• Nationwide FlexDirect account, 5% AER: interest is paid up to £2,500 for the first 12 months, falling to 1% AER thereafter. At least £1,000 must be paid in each month. You also get a fee-free overdraft for a year.
• TSB Classic Plus account, 3% AER: interest is paid on balances up to £1,500. At least £500 must be paid in each month, and you also need to register for internet banking/paperless statements to qualify.
• Bank of Scotland Classic with Vantage account, 1.5% AER: 1% AER is paid under £3,999.99, and 2% is paid from £4,000-£5,000. Vantage must be added to the account, and at least £1,000 must be paid in each month. You also have to stay in credit and pay out at least two direct debits.

Find out more:best high-interest bank accounts

Current account switching bonuses

Don't just think about interest rates when it comes to your savings.

Although their savings accounts don't top the tables, HSBC, NatWest and RBS all offer generous bonuses to new customers who switch to their current accounts.

• HSBC will pay you £175 within 30 days if you switch to its Premier or Advance accounts. The HSBC Advance Account is the cheapest option of the two; there are no fees, but you must pay in at least £1,750 a month or £10,500 over six months.

This essentially means you'll need to earn at least £21,000 a year after tax to be eligible. You have to switch using the Current Account Switching Service (CASS), and also pay at least two direct debits or standing orders from the account.

• NatWest and RBS both offer £150 for new customers to switch to a Select, Reward, Reward Silver, Reward Platinum or Reward Black account. The Select account is fee-free.

There's more of a delay on getting the cash here, as you have to pay in at least £1,500 by 24 January 2020, and will then receive the bonus some time before 21 February 2020.

Although these minimum payment might seem high, they're nowhere near as much as you'd need to generate the same amount in savings interest with, say, the top-rate instant-access account.

In fact, even at the top rate of 1.46%, you'd need to save £11,980 to get £175 interest, or £10,275 to generate £150. This would also be over the course of a year, and would mean you couldn't let the balance drop below this amount over that time.

And there's nothing stopping you getting your salary paid into your current account, then moving that money into a savings account.

• Find out more: the best and worst banks for customer service

Notice accounts

Unlike some instant-access accounts, notice accounts offer unlimited withdrawals. The only catch is, you'll have to wait a certain number of days until you receive the cash.

The most common notice periods are 30, 60 and 90 days, but accounts can range from seven days to a whole year.

The top rates for the most common notice terms are:

• Aldermore 30 Day Notice Account, 1.3% AER: £1,000 minimum initial deposit required
• Kent Reliance 60 Day Notice Account, 1.5% AER: £1,000 minimum initial deposit required
• Hampshire Trust Bank 90 Day Notice Account, 1.66% AER: £1,000 minimum initial deposit required.

Regular savings Isas

Although there are several providers offering regular savers Isas, the best-paying accounts aren't available nationwide:

• Ipswich Building Society Monthly Saver Isa, 2% AER: save £10-£1,666 a month; only available to residents in certain postcodes; withdrawals not allowed; closing your account early is subject to a penalty of 120 days' interest, not available online
• Vernon Building Society Regular Saver Isa, 1.95% AER: save £25-£500 a month; only available to residents living within 25 miles of Stockport; two withdrawals permitted per year
• Progressive Building Society Clockwork Regular Isa Saver, 1.55%: save £20-£1,666 a month; only available to residents in Northern Ireland; one withdrawal permitted per year.

What's more, all interest held within an Isa remains tax-free and doesn't count towards your personal savings allowance (PSA).

Editor's note: This article has been updated to reflect that withdrawals are permitted with the Virgin Money Regular Saver account.

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