Can you really earn extra interest by opening multiple regular savings accounts?

Anything that can squeeze a little extra interest is always a good thing to consider, although sometimes the effort may not be worth it

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A reader asks Anna Bowes, co-founder of Savings Champion, about the best way to maximise interest on savings accounts.

I know savings account interest isn’t quite as high as it was last year, but it seems you can still get very high returns on regular savers.

The catch of course is you can’t put much money in them. Is it worth opening several different ones of these and then slowly transferring cash to them? How much extra interest could I make doing this?

Anything that can squeeze a little extra interest is always a good thing to consider, although sometimes the effort may not be worth it.

Some of the top regular savings accounts are only available to those that open or switch their current account to that provider, so it may not be ideal for some.

But these accounts can be great for people saving towards a short-term goal like a holiday or wedding, and they will also help you get into the habit of saving regularly.

And can help you to earn a few extra pounds,

But you cannot look at the interest rate alone because the headline rate is not always what it appears to be. As the name suggests, a regular savings account requires you to commit to putting aside a regular amount of money each month.

In return for this regular payment to your savings provider each month, the rates on offer typically look significantly better than those available elsewhere.

For example, Co-op Bank and First Direct are both offering regular savings accounts paying 7 per cent AER, however these headline grabbing rates aren’t all they seem.

Let’s take the Co-op’s offering. You can put up to £250 a month in the Regular Saver Issue 1, which means over the year you can save up to £3,000 in this account.

At this stage, you might be thinking that means bagging £210 in interest over the year, after all you are getting 7% AER. But, if this is what you are thinking, you will be very disappointed.

Why? You only have £3,000 in the account for the last month; it took a year to build up to that amount. You only earn interest on money in the account. So, after the first month you would earn the 7 per cent on just £250, half way through the year you would earn it on around £1,500 and so on.

In real terms on this Co-op account, if you deposit £250 a month for 12 months, you would receive £114.21 after a year, substantially less than you might have expected but still a good return in today’s market. And if you had a lump sum that you were drawing from, you could earn an extra £79.63, if you were to earn 4.9% on this diminishing £3,000 lump sum.

But if you simply had £3,000 deposited in a 1-year fixed rate bond paying 5.22 per cent you would earn interest of £154.50 – so around £10 less but also with less hassle!

So, in summary we are not saying you should avoid these accounts, but just be aware that headline rates can be misleading and you need to be engaged and inventive to really make the most of them.