Bank offers bumper 7% interest rate on savings account

First Direct is offering regular savers some of the highest returns on the market with an Annual Equivalent Rate (AER) of 7%. The rate is fixed for 12 months and Britons can get started with just £25.

Regular savings accounts can be a good option for those looking to start a savings habit. These accounts typically offer higher interest rates, and the terms generally encourage savers to pay money into the accounts monthly. Savers just need to meet certain requirements on the respective accounts, and they’ll earn interest on their savings if they make minimal withdrawals and deposit regularly.

Savers with First Direct, the online retail banking arm of HSBC, can earn 7% AER on up to £3,600 per year.

Interest is calculated daily and paid at maturity, exactly one year after the account is opened. Savers can deposit between £25 and £300 per month in £5 increments.

Withdrawals are not allowed during the 12-month term. If a withdrawal is made, the account must be closed, and interest will be paid up to the closure date at the variable rate of a standard savings account.

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Principality Building Society is offering a market-leading 7.5% interest rate on its regular account. The account runs for six months, and interest is paid on maturity. Savers can invest up to £200 per month, allowing the pot to grow to a total of £1,200, and withdrawals are not permitted until the account matures.

While Principality may top the leaderboard, its six-month term limits the total interest earned. With a maximum investment of £200 per month, savers will end up with £1,227.53, including £27.53 in interest.

In contrast, savers banking with first direct will accumulate £3,736.50 by the end of the term, including £136.50 in interest. Although the interest rate with First Direct is lower, the longer term and higher deposit limit make it a potentially better option for larger savings.

The Co-operative Bank is also offering a 7% AER on its Regular Saver (Issue 1) for 12 months.

Savers can invest up to £250 per month, building total savings of up to £3,000, and can earn up to £114.21 in interest. This account also offers more flexibility, as people can make withdrawals without facing a penalty.

Melton Building Society places just behind with an AER of 5% on up to £5,999. A lower interest rate of 2.5% is applied to savings of £6,000 and over. The account spans just over three years, and savers can deposit up to £500 per month.

At the current interest rate, depositing £500 on the 1st of each month would grow to £6,163.11 after 12 months. If the same monthly deposits continued for 24 months, the total would rise to £12,548.19.

This account is much more flexible, as there are no withdrawal restrictions and no obligation to deposit money every month. However, missed monthly payments cannot be made up in subsequent months.