The banking giant confirmed its new 123 Regular e-Saver will pay a fixed rate of 2.5% interest AER/gross, for 12 months from 6 April.

This is up from the current 0.50% AER/gross rate.

The Regular e-Saver, which can be opened online or on mobile allows 123 current account (Lite, Private and Select) customers to pay in up to £200 per month, up to a maximum balance of £2,400.

The funds must be paid into the account via standing order from an existing Santander 123 World, Select or Private current account.

Any money paid in and later withdrawn will count towards the £200 monthly limit.

But, on the maximum £2,400 deposited over the year, you could earn up to £32.26 in interest, up from the current £6.50.

For existing Santander 123 regular savers, you’ll have to wait until your account matures at the end of the 12-month period to get the higher rate.

But Santander confirmed customers can choose to close their existing Regular e-Saver via Chat. Once closed, the balance and accrued interest from the old account will be paid and they can then open a new Regular e-Saver via Online or Mobile Banking. This may be particularly handy for customers who have just started paying into the regular saver at the lower 0.5%.

Last month Santander confirmed the in-credit interest rate on its 123, Select and Private current accounts would rise from 0.30% AER/gross to 0.50% AER/gross as of 28 March.

This means customers can earn up to £100 in interest on their account each year, up from the current £60.

Hetal Parmar, head of banking and savings at Santander UK, said: “We understand saving for the future remains important to many customers, and following the recent increase to the interest rate on our 123 Current Account, we’re pleased to offer 123 World customers even more value with our new Regular e-Saver.”

How good is this?

Based on interest rate alone, other regular savings accounts beat Santander’s new offering. As an example, NatWest and RBS current account customers can receive 3.04% AER on a maximum monthly deposit of £150 (interest paid monthly).

Nationwide Building Society’s Flex Regular Saver pays 2.50% AER on a maximum £200 per month deposit. Interest is paid on the anniversary and up to four penalty-free withdrawals can be made.

Either way for Santander current account customers who had seen the interest rate chopped and changed over the past two years, it is a welcome move from the current 0.5% interest rate offered on the regular saver.

Rachel Springall, finance expert at Moneyfacts, said: “It’s great to see Santander offering a more attractive regular savings account which could appeal to consumers looking to start up a savings pot. It’s also good news for customers who already hold a Regular e-Saver as Santander will be automatically applying the new 2.5% rate on any new savings deposited after their account matures at the end of their current 12-month period.

“The majority of regular savings accounts on the market are either exclusive to new or existing current account customers or have some kind of eligibility criteria, so savers will need to compare deals carefully before they apply.”