The product currently offers the best savings rate on the market, despite fierce competition from other providers. But as with all regular savers, there are caveats to watch out for and the generous headline rate shouldn't be taken at face value.
Here, Which? takes a closer look at Saffron's eye-catching account and why building societies are often able to offer better deals.
What does Saffron Building Society's regular saver offer?
The 'limited edition' Members’ Month Loyalty Saver, which launched on 1 June, boasts an interest rate of 9% AER. As such, it's the only savings account on the market that beats the current rate of inflation at 8.7% and is double the Bank of England base rate of 4.5%.
However, there are a lot of terms you'll need to stick to.
Firstly, as the name of the product suggests, the account is only open to customers who have been members of the Saffron Building Society for a year or more.
There are also restrictions on how much money you can add to your savings pot. While you only need a minimum deposit of £1 to open the account, the maximum you are allowed to pay into the account over the course of each month is just £50.
Savers are also limited to one withdrawal per month and the interest will be paid when the account matures after 12 months.
Despite these restrictions, regular savers can be great for those who don't have much cash saved already, but want to build up their savings while getting a decent return on their money.
Find out more:Interest earned may be lower than expected
The savings rate of 9% AER certainly sounds impressive, but you may be disappointed to find your actual returns are much lower. That's because of the way regular saver accounts work in practice.
The limit placed on how much you can pay in each month, means you'll only earn interest on relatively small sums of money for most of the year.
For example, if you were to save £50 a month into this account, the total amount after a year will be £600. With interest of 9%, you might assume that your money would therefore grow by £54. But because the savings pot is building slowly, you’d actually only make almost half that amount (around £30) after 12 months.
If you are able to invest a lump sum, then you'd probably be slightly better off opening a high interest fixed-term account. If, for instance, you were to make an initial deposit of £600 into the best one-year fixed-term deal paying 5.25%, you will earn £31.50 in interest.
Find out more:What are other regular saver accounts offering?
The table below shows the top rates for regular savings accounts:
As you can see, Saffron Building Society offers significantly more interest for its regular saver than the nearest competition. However, it has by far the lowest limit on monthly deposits and is not open to members that have joined recently.
While high street provider Lloyds Bank offers the lowest rate of the bunch with 6.25% AER, the account allows savers to pay in the most per month (up to £400) and has no restrictions on the amount of withdrawals you can make during the 12-month term.
Why can building societies offer better deals?Saffron's 9% rate comes hot on the heels of a 7.5% deal from Skipton Building Society, also launched on 1 June. Although the account allows to stash away to £250 a month (a total of £3,000 a year), again the deal is only available to existing members and no withdrawals are allowed.
Building societies often dominate Best Buy tables with their generous savings rates across a range of products, so what's their secret?
Part of the reason why they can afford to be more competitive with their rates is down to the way they are run. Building societies are owned by their members, who can vote in annual general meetings. But instead of a dividend cheque, directors reward members with a share of profits through higher savings rates or lower mortgage rates.
In the case of Nationwide, members receive a ‘fairer share’ payment if the building society is doing well. This year, 3.4 million members received £100 after Nationwide made £2.2bn in profits.
As Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, explains: 'Building societies can often offer competitive rates, because they’re run in the interest of members. It means they need to balance the needs of borrowers and savers, but they’re not interested in making profits on top.
'In some cases, they’ll only offer their products to customers in a specific area. This gives them the freedom to raise rates for their members, without worrying they’ll attract far more cash than they need from savers across the country.'
source https://www.which.co.uk/news/article/new-regular-saver-pays-inflation-beating-9-whats-the-catch-aeNlg3q1GSn4