By Kate Saines
Making the most of your savings pot is essential in times of high inflation whether it be through a savings bond or ISA and this means using every tool at your disposal boost your interest rate.
At the moment a basic rate tax payer would need an account paying 6.25 per cent and 6.75 per cent to earn a real rate of return based on the Consumer Prices Index (RPI) and Retail Prices Index (RPI) respectively.
And there are currently few accounts available offering inflation-beating rates. The ones which are available are often open for a limited time or require high deposits.
David Black, insight analyst for banking at independent financial research company Defaqto, said to get the best available returns, savers must review their savings regularly.
“In particular,” he added, “people should look to use their ISA allowance, and take advantage of introductory bonuses and guaranteed minimum rates on savings accounts.”
He also suggested looking at fixed-rate bonds as a way of providing a higher return over a longer term. Although, he warned, you’ll need to be prepared to lock your money away for a fixed period to benefit.
We’ve selected the best of a variety of savings accounts – instant access, fixed rate and ISAs – available now which will help maximise your returns.
Account: Coventry Building Society’s Poppy Online Saver (2)
Interest rate: 3.15 per cent, including 1.15 per cent bonus for the first 12 months. You can choose to have this paid monthly or annually.
Type: Online-only instant access account
Min/Max deposit: It requires just £1 to open and allows savers to stash up to £250,000.
Pros: Coventry will make a donation to the Royal British Legion of 0.05 per cent of the average balances held in the accounts for each 12 month period.
Cons: Watch out, however, as despite it being promoted as an easy access account just four penalty-free withdrawals are allowed each year. And the attractive interest rate includes a bonus. After 12 months the 1.15 per cent bonus ceases and you’ll receive two per cent interest. This might be the time to start looking for a new savings account with a higher rate.
Account: Nationwide My Save Online Plus (Issue 4)
Interest rate: 3.12 per cent, including 1.58 per cent bonus for the first 12 months, paid monthly.
Type: Online-only instant access account
Min/max deposit: £1,000 is required to open this account and you can save up to £3million.
Pros: This has one of the most attractive interest rates available at the moment, and you can also make unlimited deposits making it great for anyone with larger sums of money to save.
Cons: Beware of the bonus, which will end after a year. As with the Coventry product you might be better off switching after the 12 month period. Also, despite it being an ‘instant access’ account only one penalty-free withdrawal is allowed each year. If you make any further deposits you will lose much of the interest rate and the bonus in the month the withdrawal is made.
Account: Santander eSaver Issue 4
Interest rate: 3.1 per cent, including a bonus rate of 2.6 per cent for 12 months, which can be paid monthly or annually.
Type: Online instant access
Min/max deposit: You’ll need only £1 to open this account, and deposits of up to £2 million are allowed.
Pros: This account allows unlimited withdrawals (as well as deposits) so although the rate is slightly lower than competitors’ offerings it fulfils its ‘instant access’ role very well indeed. Although it is primarily an online account, it also provides access by telephone banking.
Cons: The bonus on this account is huge, and after 12 months you’ll receive just 0.5 per cent interest on your savings. So it is certainly one to consider switching from after the bonus period expires.
Compare savings options to find the rates and features you need
Account: AA One Year Fixed Rate Savings
Interest rate: 3.6 per cent
Type: Fixed-rate account, you’ll need to lock your money away for one year to benefit from the rate.
Min/max deposit: £1/£5 million
Pros: One of the most competitive one-year fixed rate savers on the market at the moment. You can close the account early if you suddenly need to access your cash and you can also make withdrawals.
Cons: You can only operate this account by post. Any withdrawals you make will not benefit from the interest, which is paid annually on the account’s anniversary.
Account: Vanquis Bank Two-Year Fixed Rate Bond
Interest rate: 4.05 per cent
Type: A two-year fixed-rate account
Min/max deposit: A minimum of £2,000 is required to open this account and you can save up to £250,000
Pros: Interest is paid annually, but you also have the option to receive it on a monthly basis. You can open the account online and then it can be operated by phone.
Cons: Opting for monthly interest payments will mean your interest rate will fall to 3.98 per cent gross. There is no access to cash for two years so it is only suitable for those willing to lock their savings away for the duration.
Compare savings bonds to find the rates nad features you need
Account: Clydesdale and Yorkshire Bank 36 Month Term Deposit Account
Interest rate: 4.3 per cent
Type: A three-year fixed-rate account
Min/max deposit: A minimum of £2,000 is required to open this account and no more than £5 million can be invested.
Pros: The 4.3 per cent rate is not only the best available in the three-year fixed-rate market, but it also matches the best rate available on four-year bonds, which comes courtesy of Halifax.
The account can be opened in branches or online.
Cons: Locking your cash away for three years is a big commitment so this is for long-term savers only. Just one deposit is allowed.
Account: Clydesdale and Yorkshire Bank 60 Month Term Deposit Account
Interest rate: 4.7 per cent
Type: This is another fixed-rate account in which you’ll need to lock your cash away for five years to benefit from the interest rate.
Min/max deposit: You’ll need £2,000 to open this account and can deposit up to £5 million.
Pros: One of the highest interest-paying accounts available at the moment.
Cons: As with all these fixed-rate accounts, you must be willing to lock your cash away for a long time. And this one requires the greatest commitment.
Account: Nationwide Online ISA Issue 2
Interest rate: Between 2.75 per cent and 3.1 per cent, depending on your balance. This rate also includes an introductory bonus, which lasts until January 2013.
Type: Instant access cash ISA account
Min/max deposit: There’s a minimum opening balance of £1,000 and a minimum operating balance of £1. Maximum deposits are governed by ISA rules, so currently only £5,340 is allowed each year.
Pros: The higher 3.1 per cent only applies for balances of £25,000 so if you have money to transfer from an existing ISA you can enjoy this top interest rate. This makes it ideal for savers who are looking to transfer to get a better rate.
Cons: For balances of more than £1,000 and up to £24,999 you’ll receive the lower 2.75 per cent rate, which is not as competitive. So if you are new to ISA saving and have no previous ISA to transfer from you’ll be better off looking elsewhere.
The fixed bonus also means you might want to look for a more competitive rate after January 2013.
Compare ISA's to find the rates and savings you need
Account: Northern Rock Online eISA
Interest rate: 3.05 per cent
Type: Online-only instant access cash ISA
Min/max deposit: £1 is required to open the ISA and you can deposit up to £5,340 in each tax year, as per current ISA allowance rules.
Pros: There’s no bonus and no stepped interest rate – what you see is almost what you’ll get.
Cons: The interest rate on this one is variable so the rate is not guaranteed. Northern Rock promises to give two months notice to savers of any rate changes, however.
And finally, here’s an account for those seeking a strong rate for their children’s saving accounts.
Account: West Bromwich Regular Saver – Child
Interest rate: 4.6 per cent
Type: A one-year notice account
Min/max deposit: You’ll need £10 to open this account, additional £10 deposits are required each month and no more than £1,200 can be invested each month.
Pros: One of the best rates available on children’s accounts. Great for people who regularly put away cash for their children or whose kids want to save up for something special.
Cons: This is not the most flexible savings account around. You must deposit at least £10 each month and the £1,200 monthly limit closes access to big savers.
Although you are allowed to miss two months’ of payments, you’ll be penalised by being landed with a lower interest rate of 0.5 per cent. No withdrawals are allowed either.
Get a free brochure on child savings accounts
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