Martin Lewis has clarified a common misunderstanding about savings accounts, explaining why many account holders receive less interest than they expect from high-interest regular saver accounts.
Speaking on his BBC podcast, Mr Lewis said he often gets angry messages from savers who feel short-changed. These accounts, available at high street banks including Lloyds Bank, Santander and Nationwide Building Society, offer rates up to 8 per cent, but payouts can be only half of what savers initially expect.
Why payouts are lower than expected
The confusion stems from how interest is applied to money deposited over time rather than as a lump sum up front. Mr Lewis said: "Regular savers always pay people less interest than they're expecting."
He gave an example of an account paying 6 per cent where you pay in £250 a month, depositing £3,000 a year. Savers might expect £180 in interest, but Mr Lewis explained: "What people forget is that they're working out 6 per cent on £3,000, but they've been drip-feeding the money in over the year, and in the first month, they only had £300 in, so they just got 6 per cent on £300."
How to calculate your interest earnings
Mr Lewis offered a rough way to estimate interest earnings: "The best way to think about it is, count the money halfway along, if you're maxing it, which in this case, if it's £3,000, would be about £1,500, and then think 6 per cent of that, and that's roughly how much you're going to get out."
For example, Nationwide Building Society's Flex Saver pays 6.5 per cent. Paying in £200 each month for maximum interest would not earn 6.5 per cent of £2,400 (£156), but just over half that amount, receiving £84.50.
Highest regular saver rates
Despite the confusion, regular saver accounts still offer some of the highest headline rates on the market. Mr Lewis said the rates on offer are typically "the highest you can get".
Current top regular saver rates with major banks include: Santander at 8 per cent variable (up to £200/month), First Direct at 7 per cent fixed (up to £300/month), Co-operative Bank at 7 per cent variable (up to £250/month), Nationwide Building Society at 6.5 per cent variable (up to £200/month), NatWest at 5.25 per cent variable (up to £150/month), HSBC at 5 per cent fixed (up to £250/month), and Lloyds Bank at 5 per cent fixed (up to £250/month).
Many local building societies also offer regular savers with similarly competitive rates.
