Top savings accounts for the new financial age

How to build up your savings pot - plus a round-up of the best regular savings accounts on offer.

This article was sent to readers as a lovemoney.com Afternoon email.

I have a confession to make. Up until a couple of years ago, I had no savings at all.

I'm not proud of the fact. Sure, I was a young, penniless graduate - but I still could have put a little aside every month. Instead, I lived hand to mouth and was often a few pounds away from my overdraft limit.

The recent financial blow-out has taught many of us 20-somethings a stiff lesson. When bad times hit, they can hit pretty darn hard - and those without a savings cushion are likely to suffer a knock-out blow.

If you lost your job tomorrow, how long would you be able to survive before you had to rely on credit cards and high-interest loans? A scary thought.If you're not already building a savings pot, you need to start one straight away.

This is where regular savings accounts come into their own. Not only do they offer some of the highest interest rates around, but having one will also help you build the good saving habits so many of us lack.

The basics

Regular savings accounts offer decent rates of interest, often fixed for a year.

In return, you have to commit to a set payment by standing order every month. There are usually minimum and maximum limits on the amount you can invest.

You need to be quite disciplined to make this sort of account work for you. If you miss a payment, the rate you receive is likely to fall dramatically - and some accounts shut down completely.

After a year, you're likely to be dumped onto a much less competitive rate with the same bank or building society. This means you have to be ready to pick up your savings pot and hunt down a new high interest deal when your first one ends.

Best in show

At the moment, regular savings accounts are offering some of the best rates in the savings market - higher than most bonds.

Here are my top three picks:

My number one choice is the Barclays Monthly Savings Account, It offers a very decent 6% AER, and is relatively flexible about withdrawals. They can be made, but the interest rate you receive during that month will drop by 2.85%.

The Norwich & Peterborough BS Family Regular Saver Account also offers 6% AER, but that includes a 3% bonus. One penalty-free withdrawal per year is allowed - but any more withdrawals will mean the loss of that bonus.

On the plus side however, this account allows you to start saving from just £1 a month.

Finally, the Principality BS St David's Day Regular Saver Bond: This pays a lower rate (4.5% AER), but it does allow you to invest twice as much as the others every month.

The account matures and closes down completely after one year, making it a sort of regular savings/bond hybrid.

Nasty surprises

Some regular savings accounts come with a heck of a lot of strings attached. When choosing yours, scrutinise that small print to make sure you're not biting off more than you can chew.

I've excluded several accounts from my top picks because of unpleasant strings. Take Abbey's Super Fixed Rate Monthly Saver (Issue 7) as an example. It offers a very juicy 6% AER on monthly deposits of £20-£250.

However, here's the catch: To open this account you must also open a new regular investment, pension or protection plan with Abbey. That's a pretty big commitment for a rate that only lasts a year!

The early bird catches the rate

The rates offered on savings accounts have dropped sharply in recent months as the Bank of England Base Rate has plummeted.

Many economists are predicting that the base rate will fall still further - to a teeny 0.5% - when the Bank of England makes its monthly decision later this week.

If the base rate does fall, savings rates are likely to be hit once again. So act fast to be sure of getting the deals I've mentioned!

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