Top savings accounts to suit every pocket
With the situation looking bleak for savers, Serena Cowdy pinpoints the accounts that will help you make the most of your money!
Savings rates sank like a stone when the Bank of England slashed the base rate to just 0.5% a year ago. And the Bank's latest quarterly inflation report, published last month, indicates that interest rates could stay at that record low well into next year.
However, this gloomy forecast shouldn't put people off saving. In fact, uncertain economic times make it even more important to have a substantial savings 'cushion', to protect against wage cuts and possible unemployment.
I'm going to point out some of the top savings accounts still on the market - so you can make the best of things.
Instant access
Although they're known as 'easy access' or 'instant access' products, some of these accounts actually come with a host of withdrawal restrictions, penalties and linked products involved.
I'm going to concentrate on accounts that are truly easy access. With these you can deposit and withdraw what you want, when you want; and you don't need to have another account with the same provider.
Top pick
My favourite instant access account is currently the Internet Extra account from The AA, which pays a market-leading rate of 3% AER (variable). This includes a fixed bonus rate of 2.5% AER for the first 12 months, so you can be sure your rate won't drop below this level during that period.
You need just £1 to open the account, and interest is paid annually. Just remember that the account can only be operated online. And after a year, the interest rate drops to just 0.5% - so that's the time to look for a more competitive alternative.
Good alternative
One of the best alternatives is the ING Direct Savings Account. This pays 2.5% AER, and (unlike most instant access accounts) the full rate is guaranteed for the first 12 months.
Again, you need just £1 to open the account (with interest paid on a monthly basis) and the account can be operated over the phone as well as online.
Just a couple of things to bear in mind: This account is available to new customers only, so you won't be able to get one if you've held an ING Direct Savings Account in the last six months. And after a year, the rate will drop to the account's variable rate (currently 0.5% AER) so as usual, it will be time to move your savings elsewhere.
Regular savings
Regular savings accounts usually give relatively high, consistent rates of interest in return for your making regular deposits. This means operating one is a great way to get into the savings habit.
Just be aware that most regular savings accounts are not very flexible: If you miss a payment or make a withdrawal during the term of the account, you're likely to be hit with a financial penalty in the form of reduced interest rates.
Top pick
My top regular savings account is the Branch Fixed Rate Regular Saver (Issue 1) from Nottingham Building Society. This pays a very good, fixed rate of 5% AER until 1st February 2011, on deposits of between £10 and £100 per month. Interest is paid as a lump sum when the account matures.
Withdrawals aren't allowed - but you are allowed to make as many deposits as you want to, as long as you don't exceed the £100 monthly limit. Unusually, you're also allowed to miss monthly payments without the interest rate being affected.
However, this account has two main limitations. The first is the relatively low maximum monthly deposit of £100; and the second is the fact that it must be opened, in person, in a Nottingham BS branch.
Good alternative
If you want to save slightly more every month, take a look at the Regular Saver Plus (Issue 2) from Stroud & Swindon Building Society.
This account pays a decent rate of 4.5% AER on monthly deposits of between £10 and £250. Be aware, however, that this rate is variable, so you'll need to keep an eye on it.
You're allowed to make more than one deposit a month (as long as you don't exceed the £250 limit) and the account can be operated by post, in-branch or over the phone.
However, if you miss any monthly payments, or make more than one withdrawal, your rate will fall by 2.5%. So to make this account work for you, you need to be quite disciplined in your saving habits.
Fixed rate bonds
If you have a lump sum you want to squirrel away, it could make financial sense to stash it in a bond. In return for committing your cash for a certain period of time, you'll be offered a decent, fixed rate of interest.
The longer the term of the bond, the higher the interest rate you're likely to be offered. However, this benefit has to be weighed up against changes in the economy as a whole. If you commit your money to a five-year bond, and then UK interest rates increase in the next couple of years, your juicy fixed rate could be left behind.
It's very difficult to predict what's going to happen to interest rates in two or three years' time. Because of this, I'm going to concentrate on short-term bonds, lasting either one or two years.
Top pick
When it comes to one year bonds, my first choice is the Growth Bond (one year option) from the Post Office. It pays a market-leading rate of 3.3% AER on deposits of at least £500, and can be operated online, by post or in Post Office branches. Interest is paid on maturity.
Just remember that you can't make any more deposits, or any withdrawals, during the term of the bond. And it's also worth knowing that (because Post Office Savings are run by Bank of Ireland) the account is covered by the Irish government's financial safety scheme rather than the UK's Financial Services Compensation Scheme (FSCS).
Good alternative
If you're willing to commit a lump sum for two years, the HiSAVE Fixed Rate Account (two year option) from ICICI Bank UK might be your best bet.
This bond is covered by the FSCS, and pays 4.1% AER on balances over £1,000. Interest can be paid either monthly or annually.
Again, you can't make any more deposits, or any withdrawals, during the term of the bond. And in this case, the account can only be operated online.
Happy saving!
**Articles featured on BeatThatQuote.com are for information purposes only and reflect the views of individual writers. Articles are not, and should not be considered as, financial advice. BeatThatQuote.com strongly encourages our readers not to rely solely on information contained within our website, but to conduct their own research and seek independent advice about the financial products they purchase.**
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