Coventry launches 4% interest savings account for first time buyers

Coventry Building Society has launched a 4 per cent interest savings account aimed specifically at aspiring first-time buyers.

The mutual’s First Home Saver will allow savers to save up to £1,000 each month for up to three years.

The regular savings account is aimed at people saving towards their first home, or for family members looking to support their children or a relative buying their first home.

Helping hand: Coventry also says that relatives can also open this account to help a member of their family save for their first home

Although it isn’t an easy-access deal, it does allow savers to withdraw their cash following a 60 day notice period.

Those who need to withdraw immediately will face a charge equal to 60 days’ interest on the amount withdrawn.

Someone stashing the maximum £1,000 into the account for three years will earn £2,266 in interest during that time.

Average house prices in England currently stand at £315,000, according to Land Registry data. 

This means first-time buyers would need to save £31,500 in order to buy with a 10 per cent deposit.

That also doesn’t include the fact that the average first time buyer also spends £9,780 in additional purchase costs, according to research by Coventry and the Centre for Economics and Business Research.

These typically include moving costs, legal fees, surveyor fees, valuation and mortgage fees, as well as new furniture, and quite often renovation or decoration.

Coventry’s deal can be opened online or by telephone and interest will be paid on an annual basis – rather than monthly.

At the end of the three year term, the account and all funds will automatically transfer to an easy-access account. 

Coventry is also promising an extra £500 cashback to any first-time buyer who goes on to purchase with a Coventry mortgage within five years of the savings account being opened. 

Whether or not this is a useful incentive will depend on the rates on offer and how they compare to the wider market.

>> Check the latest mortgage rates you could apply for here 

Ian Biggs, head of product performance at Coventry Building Society, said: ‘First-time buyers are the lifeblood of the property market, and we want to provide all the support we can to help them realise their dreams.

‘We understand taking that all-important first step on the property ladder can be a challenge with rising house prices and the huge effort made into saving for a deposit.

‘Our First Home Saver pays a market leading interest rate of 4 per cent for first time buyers with the flexibility to change the amount paid into the account up to a maximum £1,000 a month.

‘This account also caters for the bank of mum and dad and other relatives too. Parents will often help their kids get on the property ladder and by doing so, if their child completes on a mortgage with us, they can receive a £500 bonus.’

Is it a good place for first-time buyers to save?

This is certainly an eye-catching offer for anyone currently saving towards a deposit on their first home.

The 4 per cent rate is better than what any easy-access deal or notice account is currently paying.

The best easy-access deal pays 3.35 per cent on balances up to £5,000 while the best notice account pays 3.55 per cent with a 90-day notice period. 

>> Check out the best easy-access savings rates here

The 60-day notice period shouldn’t prove to be inhibitive to most purchases either as the legal enquiries and mortgage application can take months to complete. This should give buyers enough time to withdraw their cash without incurring a penalty.

However, anyone currently saving to get their foot on the property ladder should also consider using a Lifetime Isa (Lisa).

Boost: Savers under the age of 40 can open a Lifetime Isa and get a 25% Government bonus

Savers under the age of 40 can open a Lisa and until they hit 50, the Government will chip in £1 for every £4 they save, giving a £1,000 bonus on the maximum £4,000 a year you can save. This essentially gives their savings a 25 per cent top-up before interest is even factored in.

That money can either be used towards a deposit on a first home or be withdrawn from the age of 60 to help fund retirement.

However, there are two crucial rules to be aware of. First, whether buying individually or as a couple, the value of the property purchased must not exceed £450,000.

It is also possible to end up worse off if someone decides to cash in the Isa before 60 without buying a first home. This is because a 25 per cent penalty applies to the amount withdrawn in this case.

Although there are only a handful of savings providers that offer Lisa deals, they are reasonably competitive.

Moneybox offers the market-leading rate of 3.5 per cent, made up of a 2.75 per cent base rate and a fixed one year bonus rate of 0.75 per cent.

If the Lisa isn’t an option, perhaps because someone might already be maximising their annual allowance or because they intend to buy above the £450,000 threshold, then Coventry could be a great option.

However, the account is not without its limits. While the £1,000 monthly cap will be perfect for anyone looking to regularly set aside their income each month, those who have already built up a pot won’t be able to benefit from the higher rate as a result.

Instead they will have to drip feed their savings from their current provider to Coventry each month.

There will also be many savers who are putting aside much smaller sums than £1,000 each month.

Under such circumstances they may find there are better rates available based on the amount they are looking to put away each month.

For example, NatWest and RBS banking customers have access to its Digital Regular Saver account paying 6.17 per cent, and this allows savers to withdraw money at any time.

Shop around: NatWest has also upped the interest rate on its Digital Regular Saver to 6.17%

This will be paid on balances up to £5,000, with savers able to stash away up to £150 every month. Anything saved above £5,000 will only earn 0.65 per cent.

Someone depositing the maximum £150 each month for 12 months will earn £60 in interest after one year.

Someone paying in £150 each month for the next two and half years will earn £366 in interest during that time. Meanwhile, £150 a month saved into Coventry’s deal will only earn £236 in interest during that time.

First Direct has a regular savings deal paying 7 per cent which allows deposits of between £25 and £300 each month for a 12 month term.

Someone saving the maximum £300 each month for one year into this account will earn £135 in interest. However, the downside is they won’t be able to withdraw their cash until the 12 month period ends.