Regular savings - A jewel to help savers?

Regular savings accounts often attract some attention owing to their ability to provide high interest rates when normal savings rates are poor. Current offerings provide 2.75% which laughs in the face of the 1% offering for easy access savings. So is this too good to be true? In short, yes. But if you understand how regular savings accounts work, you can get some inflation beating rates. A regular savings account offers savers an ability to put a capped amount of money into a savings account each month and earn interest that is calculated on the amount in the account monthly. THIS IS DIFFERENT TO OTHER ACCOUNTS THAT CALCULATE INTEREST ANNUALLY. In normal savings accounts the amount you contribute over a year is added together, and interest is calculated on the total. So pay £100 in each month and you have contributed £1200 over the year. Interest of 1% (current going rate) is calculated as 1% of the total, equalling £12 which is paid to you at year end. In a regular saver interest is calculated on the balance in the account each month. So using the above example in month 1 your balance is £100. Interest is calculated at 2.75% of this balance which equals £2.75, which is then divided by 12 to get the monthly interest. So month 1 interest is £2.75/12. In month two your end of month balance is now £200 and your interest is 2*£2.75/12. For month 3 you have a balance of £300 and interest of 3*2.75/12. Month 4 is £400 and interedt of 4*2.75/12. So over the year you end up with a total interest of (1+2+3+4+5+6+7+8+9+10+11+12)*£2.75/12 = 78*£2.75/12 = 6.5*2.75 = £17.80. This is paid to you at year end. However £17.80 is not 2.75% of the total £1200 you contributed that year. It is in fact 1.49% of the total. This is quite deceptive, but is a feature of how the interest is earned. Regular savers pay you more on the money you contribute early after opening your account than on what you contribute later. We can use this to our advantage. Now lets say we run a regular saver for 6 months contributing £100, then 6 months contributing £0. We will get (1+2+3+4+5+6)*£2.75/12 interest for the first 6 months, and then (6+6+6+6+6+6)*£2.75/12 for the subsequent 6 months. Total interest being 51*£2.75/12 =£11.69. But remember we only contributed £600 this time round, and £11.69 interest becomes an overall interest rate of 1.95%! So instead of having one regular saver with £100 per month contributions and an overall return of 1.49%, we could run two front loaded regular savers at £100 per month for the first 6 months, and get 1.95% on the £600 we contribute to each! PRETTY GOOD!