M&S Bank slashes interest rate on its regular savings account from 5% to just 2.75%

The news comes HSBC and First Direct cut the rates on their regular savings accounts in October

M&S has become the latest bank to slash its regular savings rate.

The bank is has cut the rate on its fixed-term regular savings account from 5% to 2.75%.

It comes after HSBC and First Direct cut the rates on their regular savings accounts in October.

This year has been a tough one for savers, with lenders cutting rates across the board and withdrawing products.

According to Moneyfacts, average interest rates on regular savings accounts have dropped from 2.64% to 2.24% this year so far, based on a balance of £1,000. 

Rachel Springall, finance expert at Moneyfacts, says savings rates have been on a downward trend this year.

She says: “Providers are uncomfortable offering lucrative interest rates to savers, including guaranteed fixed interest rates applied on regular savings accounts.

“Those looking to save towards Christmas 2020, or simply to get into the savings habit for other goals, will feel disheartened, but this outcome seemed inevitable given the economic uncertainty."

Regular savings accounts

A regular savings account requires you to put aside money each month and can pay up to 5% interest – considerably more than the average easy-access account.

Offering some of the best rates on the market, they are ideal for someone looking to start saving.

However, some only offer the headline rate for a year or require you to be an existing customer.

Another downside is the low maximum deposit amount – usually around £250 every month - while there are penalties if you fail to make a monthly payment.

Alternatives

FirstDirect and HSBC both offer regular savings accounts at a rate of 2.75%.

While M&S, HSBC and FirstDirect all offer higher rates than other regular savings accounts, you have to be a current account holder with them to get a regular savings account.

If you are looking for a no strings attached deal, Principality Building Society pays the top rate of 2.70% which matures after one year. However, you can only save up to £125 a month.

Coventry Building Society also has a regular savings account at a rate of 2.50%. You can put away a maximum of £500 a month and after a year it matures into an easy access saver which pays an interest rate of 1.05%.

Savers who still wish to earn 5% on their savings will have to take out a Nationwide FlexDirect account. The 5% interest rate is an introductory 12 month offer - when it ends the rate drops to just 1%. Agreed overdrafts are free for the first year but you’ll need to pay in at least £1,000 a month.

Myron Jobson, personal finance campaigner at Moneywise's parent company interactive investor, says: “The demise of the last 5% fixed term regular savings account is symptomatic of the stuttering savings market. We all need cash savings for that rainy day, or emergency repair, and at least three month’s salary is a good minimum to aim for. But the demise of the 5% fixed term regular savings accounts is a good excuse to review your cash holdings."