Santander has unveiled a new savings account paying 8 per cent interest – but the headline rate doesn’t tell the whole story.
The bank has launched a new regular saver paying a market-leading 8 per cent and paired it with a £180 switching bonus for customers willing to move their current account using the current account switching service (CASS).
At a time when the best easy-access accounts are paying closer to 4 to 5 per cent, the deal is likely to grab plenty of attention from savers looking to make their money work harder.
But while the offer is undoubtedly one of the strongest on the market, experts say consumers should look beyond the headline figure before rushing to sign up.
The best rate on the market
The account is available to anyone with a Santander current account, including its fee-free everyday current account.
James Blower, founder of The Savings Guru, said it beats Zopa Bank’s long-time best buy, which offers a rate of 7.1 per cent.
The launch is the latest sign of banks stepping up competition for savers after a prolonged period of higher interest rates.
Anna Bowes, co-founder of Savings Champion, said regular saver accounts often pay some of the best rates available, as usually the maximum you can deposit is limited.
She said: “Regular savings accounts are a good option, especially for those who don’t have a lump sum to invest, and they are one of the best ways to get you into the savings habit.
“Deposit the amount you can afford the day after you are paid, and it becomes like another bill – but one that you can benefit from in the future.”
Why the headline rate isn’t quite what it seems
The catch is that customers cannot simply deposit a large sum and earn 8 per cent on the whole balance.
Instead, the account is a regular saver, meaning money has to be drip-fed in over time. Customers can deposit a maximum of £200 a month, meaning the most they can save over a year is £2,400.
As a result, the amount of interest earned is far lower than many people might expect.
Blower said: “The most a saver can put away is £2,400 over the course of the year which will net approximately £104 in interest.”
Sarah Coles, head of personal finance at AJ Bell, added: “This is a great, eye-catching rate that would be really useful for anyone trying to build a savings pot. However, you need to understand exactly what’s on offer.
“The final payments are going to spend very little time earning 8 per cent. It means someone with £2,400 could make more interest leaving it all in an instant account paying 4.5 per cent for a year than drip feeding it into this account.”
That means people who have a lump sum to save could potentially earn more elsewhere.
The bonus disappears after a year
Another important detail is that the 8 per cent rate is temporary. The account includes a 5 per cent bonus that lasts for the first 12 months only. After that, the rate drops to 3 per cent.
Coles warned: “If you don’t switch at that point, you’ll only get 3 per cent. It means you need to be prepared to move accounts.”
But Santander’s account is still more generous than some rival regular savers once the introductory period ends.
Is the £180 switching bonus the real attraction?
For many consumers, the most valuable part of the package may actually be Santander’s switching incentive rather than the savings account itself.
Customers who switch their current account and meet the eligibility criteria can receive £180 on top of access to the new saver.
Given that the maximum annual interest is only £104, the switching bonus is worth substantially more than a year’s worth of savings returns.
How does it compare with rivals?
While Santander now boasts the highest headline regular saver rate, competitors still offer strong alternatives.
Zopa’s regular saver currently pays 7.1 per cent, while First Direct pays 7 per cent and is offering a £200 switching incentive.
But Blower argues consumers should compare the overall package rather than chasing the highest percentage.
He said: “Zopa’s Biscuit current account calculates that its free-to-use package is worth £192 a year from cashback and interest on their account and regular saver, which pays 7.1 per cent.
“First Direct also pay £200 to switch to them and have a fee-free £250 overdraft as well as a 7 per cent regular saver which compares favourably as an overall package versus Santander.”
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