Save to buy: savings accounts that help you build a deposit

Piggy bankSome banks and building societies offer special save-to-buy savings accounts, designed to help savers build a decent deposit. But are they are better than normal savings accounts?

A number of lenders offer savings accounts designed specifically to save for a deposit to buy your own home. There aren't many, but here are the top ones I could find that are widely available.
Monmouthshire First Home Bonus Saver
This pays a 2% variable interest rate, which means the rate can be decreased at any time for any reason and, theoretically at least, increased too.

If you take out a mortgage with Monmouthshire Building Society within five years, you'll get a fixed bonus of 3% AER per year added on to your savings interest.
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Newcastle Building Society Big Home Saver
This comes as an ISA (a tax-free savings account) as well as an ordinary, taxable savings account. You get a variable interest rate of 3% AER, provided you deposit between £1 and £500 every month. If you fail to do so, your rate sinks to 2%, which is again variable.

In addition to that mediocre deal, you'll receive a cheque of £500 if you save over £5,000 and a cheque of £1,000 if you save over £10,000, provided you ask for and are granted a Newcastle mortgage with your deposit money.

Leek Building Society Homebuyer Regular Savings Account
This is for regular payments of £50 to £1,000 per month and pays a variable interest rate of 3%. Withdrawals are not allowed. If you close the account you'll lose 90 days' interest.

If, after building your deposit, you're accepted for a Leek Building Society mortgage, you'll get £250 cashback for savings of £2,500 or more, and £500 cashback for savings of £5,000 or more. In addition, you'll get free buildings and contents insurance for one year if you have savings of £10,000 or more.

Remember to shop around the following year for your insurance.

Nationwide Save to Buy Savings Account
This is available as an ISA and an ordinary savings account. It's for first-time buyers only. You can save in it for six months to three years.

The account pays 2.5% variable interest on the first £20,000 and the excess rate is practically nothing (0.1%). You can't make withdrawals but can close the account at any time.

Open an account and deposit at least £50 per month (you can miss a handful of payments per year) and, after just six months, you'll be allowed to apply for Nationwide's Save to Buy mortgage with just a 5% deposit.

On successfully getting a Nationwide mortgage you'll get £250 cashback if you save £2,500, £500 cashback if you save £5,000 and £1,000 cashback if you save £10,000.

Yorkshire Bank and Clydesdale Bank Regular Home Saver
These two banks, which are in the same banking group, offer a save-to-buy account that is a combination of the above deals, and therefore more complicated.

You'll get just 0.5% AER interest on the savings.

You must deposit at least £200 per month, with one payment holiday per year. You can withdraw your money with 40 days' notice.

If you save a 5% deposit you'll get £500 cashback and for a 10% deposit you'll get £1,000 cashback, provided you're accepted for a mortgage with Yorkshire or Clydesdale.

However, if the bank doesn't offer such a mortgage at the time you apply, you'll have to keep saving until you have a greater deposit, perhaps even 20%. You'll still only get £1,000 cashback though.

The alternatives will normally be better
The above homebuyer deals have mediocre savings rates, particularly when you take into account the tight restrictions.

Just for example, the top easy-access deal I found in my quick search of the whole market was the Santander eSaver. There are no restrictions to accessing your cash, and it pays 3.20% AER. What's more, thanks to its bonus, you know that you won't earn below 2.70% in the first year.

Those who want to build up their savings in regular savings accounts could also get 5% fixed interest or more for one year from first direct, HSBC, The Nottingham and Norwich & Peterborough. Some of them have quite stringent terms and conditions though, such as opening a current account.

Is it worth tying yourself in for cashback?
Some of these homebuyer savings accounts offer sizeable cashback if you're accepted for a mortgage.

For most people, it doesn't make sense to let yourself be bribed into an uncompetitive savings account without knowing what following mortgage deal you might be offered, and how it will compare to others.

If in doubt, always buy your financial products separately.

Is it worth tying yourself in for a 5% deposit mortgage?
Nationwide's tie-in includes the offer of a 5% mortgage – provided you're accepted.

This offer probably has more to it than the others mentioned, because there aren't many competitors in the 5% deposit market.

If you're confident the Nationwide deal is the best one that you're likely to be accepted for, its Save to Buy Savings Account could make sense, particularly if you want to buy in just six months' time.

I think the account makes less sense the longer you need to save for. Over time, the risk grows that the overall deal won't be the right one for you, that you might miss out on a much better deal somewhere else, that Nationwide's prices might rise out of a sensible price range, or that your own circumstances and financial means will change.

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