First Direct's regular saver now pays 7% interest - but there's a catch - Which? News (2024)

First Direct has upped the interest rate on its regular saver account to 7% AER. But it's not available to everyone, and comes with several terms you'll need to stick to.

The bank recently doubled the AER on its regular savers account from 3.5%; the current rate is the highest we've seen for this type of account since 2012.

But it comes with caveats and, as with all regular savings accounts, the generous headline rate shouldn't be taken at face value.

Here, Which? takes a closer look at the First Direct account, and how it compares to other regular savings accounts.

What does the First Direct regular saver offer?

The 7% AER rate is fixed for 12 months, during which time no withdrawals are allowed.

You must deposit between £25 and £300 a month via standing order, up to a maximum of £3,600 for the year. You can change the standing order amount at any time.

Anyone who already had a First Direct regular saver before the increase will find the rate on their account increased to 7% as of 1 December.

When the 12-month term is up, your account will be paid into a sole savings account. If you don't have one, a new account will be opened for you and your funds will be transferred into it.

This savings account is available to anyone with a First Direct current account. If you're not yet a customer, you can open a 1st Account and get the rate on the saver – and the good news is, you get a £175 bonus by switching.

To be eligible for the bonus, you must use the Current Account Switch Service (CASS) to switch, and deposit £1,000 within three months of opening. You must be a new customer to First Direct, and cannot have had an HSBC current account on or after 1 January 2019.

How much interest will you earn?

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

If you pay in the maximum £3,600 over the 12 months, you 'll earn £136.50 in interest. Based on the sum you've saved, that's an overall increase of 3.79%.

If you pay in the minimum £25 a month, you'll earn £11.38 in interest.

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How do other regular savings accounts compare?

The table below shows the top rates for regular savings accounts, including the account from First Direct.

_{Source: Moneyfacts. Correct as of 6 December 2022, but rates are subject to change}

As you can see, First Direct has the best rate, offering significantly more interest than the nearest competition. However, it does come with some strict terms.

If you're looking for more flexibility, regular savings products from high-street providers Lloyds Bank and NatWest have no restrictions on withdrawals.

Who are regular savings accounts suited to?

Regular savings accounts can be great if you don't have much cash saved already but want to get into the savings habit 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, as many regular savers don't allow withdrawals, you'll need to 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; the current highest rate is 2.81% EPR from Al Rayan Bank.

If you already have a significant sum of money to lock away, you can earn more interest by opting for a fixed-term account rather than a regular saver.

For instance, the current top-rate, one-year, fixed-term savings account comes from the State Bank of India. It pays 4.31% AER, which, if you saved the same £3,600 you might have saved in the First Direct regular saver, would earn you around £158 in interest, £21.50 more.

For savers who don't have enough cash to open a fixed-term account, the return offered with First Direct still works out better than the best restriction-free instant access account, currently 3% with HSBC. But how do other regular savings accounts compare?

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

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How to make the most of regular savings accounts

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

Fixed or variable?

There are two types of regular savings account: fixed-rate and variable. Fixed-rate deals offer higher interest rates, but comes with 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.

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.

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 savings account. Just make sure you can afford to pay in the required amount of money to keep them open.

Switch after maturity

Regular savings 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