Savers can access the highest interest rate in almost a decade from Thursday, following the launch of a new “best buy” account paying 7pc.
First Direct has announced it will double the rate on its regular saver from 3.5pc to 7pc on Thursday December 1. It will replace Monmouthshire Building Society, which offers an account paying 5.5pc, as the market-leading provider.
This is the highest rate since January 2013, according to the analyst Moneyfacts.
First Direct is the latest bank to raise the rate on its regular savings account following increases by HSBC and NatWest in recent weeks. However, customers must have a First Direct current account to access this top rate.
Regular savings accounts typically offer higher returns than other savings accounts because they require savers to commit to paying in a certain amount each month and sometimes come with a 12-month term.
First Direct’s rate is more than twice as much as the Bank of England Bank Rate, which reached 3pc this month, up from 0.1pc at the beginning of December.
Anna Bowes, of the analyst Savings Champion, called the 7pc offer a “headline-grabbing rate”.
She said: “If it encourages people to save, that’s good, but make sure it’s right for you.”
First Direct’s account only allows savers to deposit up to £300 a month, amounting to £3,600 over the one-year term.
Ms Bowes said: “The headline rate of 7pc will only apply to the first payment into the account as this is the only amount that will be deposited for the full 12 months.
“All subsequent deposits will be invested for part of the year and will therefore earn part of the 7pc.”
The maximum interest that could be earned over the course of the year would be £136.50, which is an effective rate of 3.79pc, according to Savings Champion.
The rate is still higher than the market-leading easy-access rate offered by Al Rayan Bank, which pays 2.81pc.
Ms Bowes added: “You will need to hold a First Direct 1st current account in order to open this account – so make sure that the current account is appropriate before simply opening it in order to gain access to the savings account.”
Rachel Springall, of Moneyfacts, warned that regular savings accounts are “more rigid” than easy-access accounts and harsh penalties could be applied if payments are missed or withdrawals are made.
She said: “They are most suitable for savers who need a strict savings plan and who wish to avoid dipping into their cash early.”
There are only nine banks paying 5pc or more on their regular savings accounts, according to Moneyfacts.