Savings Accounts
Earn 6.55% instant access

The top savings account pays 6.5% with instant access and a guarantee the rate will stay high, yet many people still stick with ‘losings’ accounts, those paying less than inflation after tax. This is a full best buy guide to maximizing your interest; including a unique calculator which will tell you how much, how long, or how big your savings should be.

• Where to save
• Are you a loser?
• How safe are savings?
• What to watch with savings
• BEST BUYS: Top Accounts
• Guarantee a top rate
• BEST BUYS: Fixed rate savings
• Guaranteed Rates
• The Savings Calculator
• Other Articles/Discuss

When I said ditch your bank...

Paradoxically, don't start saving with a savings account. First, use any spare cash to Pay Off Debts, which usually cost much more interest than savings pay out. After that consider Cash ISAs, which are effectively tax-free savings accounts, and Regular Savings Accounts, where you put money away each month in return for a higher rate, as both should pay you more interest.

Read a full ‘Where To Start With Savings' article.

Once that's done, use a savings account, which is simply a place to dunk unlimited cash while it's unused, to earn high interest. They have less functionality than normal day-to-day current accounts offering neither cheque books nor, with a few exceptions, cash cards.

How can savings be losings?

Inflation measures the rate prices increase, so if savings don't beat inflation after tax, they're losing you money. An example should help:

Imagine inflation is 10%, meaning things costing a pound this year cost £1.10 next year. Put that pound in a savings account paying 5% interest and, if we forget tax, by next year it'll have grown to £1.05. Thus keeping cash in that account actually reduces your spending power, making it a losings account.

How safe are savings accounts?

Banks are like bridges, they almost never collapse but when they do the splash is huge. All legit UK savings institutions are registered with the Financial Services Authority (FSA), which means they're signed up to the Financial Ombudsman complaints service and more importantly the Financial Services Compensation Scheme.

This means in the ridiculously unlikely event a bank went bust, you'd get every penny of the first £35,000 of your savings per institution back. Therefore, while I think it’s a touch of overkill, if you want total peace of mind don’t put more than £35,000 in any bank; spread it around for safety. Full details of the rules, how to do this, and pros and cons are in the Are my savings safe? article.

What to watch with savingsThe simplicity of savings doesn't stop providers playing tricks:

• Introductory ‘bonus' rates. Temporary interest hikes to attract new customers. For active consumers, as you can shift the cash to a better payer as soon as the bonus ends, it's no problem. However, easy-life seekers should avoid them.
  
  
• Suck, slap and flog naming. Some banks suck you in with a high rate, then later slap the rate down, and try to flog another similarly named account so you think you're still earning decent interest. Always know your account's exact name.
  
  
• Quoting different interest. Banks quote one of two different interest rates. The Gross rate is the flat amount paid; while the Annual Equivalent Rate (AER) takes into account interest compounded over the year. Check which rate you're being quoted and compare like with like. For a detailed explanation see What's The Difference Between AER And Gross?
  
  Also remember interest rates are usually quoted without tax, but for basic rate taxpayers 20% of the interest earned goes to the taxman; for higher rate taxpayers it's 40%.

The UK's Top Savings

There’s currently a clear winner on rate, paying far more interest than anywhere else. All the following top accounts are either instant access, meaning you can withdraw cash immediately via a branch; or no-notice, which means as it's an internet/phone account, in practice it takes a few days to get the cash in your hands:

The Top Clean Easy Access Accounts

• 6.55% from £100, online access with strongest rate guarantee

  My top pick is Kaupthing Edge* at 6.55% AER, and guarantees to be at least 0.30% higher than the Bank of England base rate until 1 February 2012, meaning it’ll be a high, if not always top, payer until then. The account is online only and you need £100 to open it.

  Kaupthing is the UK offshoot of a big Icelandic bank, yet this isn’t an issue as for all intents and purposes it operates like a UK bank. It’s signed up to the Banking Code and is totally covered by the UK compensation scheme meaning, like every bank, the first £35,000 per person saved there is covered (see Are your Savings Safe? for more).

• 6.52% online if you've less than £100, but no rate guarantee.

  Two accounts pay a smidgeon less than Kaupthing yet you only need a pound to open them. Birmingham Midshires e-Saver pays 6.52% and Bradford and Bingley's Internet Saver 6.51%, and this guarantees to at least match the base rate until January 2010.

Beat this if you're prepared to lock cash away. See Fixed Rate Savings.

Specialised alternatives

• 6.5% from another account, but with a short-term bonus
  
  You can match the top rate in a no-notice account but this includes an introductory bonus rate hike. Therefore if you’re willing to monitor the rate and shift your cash to the new best payer when it ends you can spread your cash and earn the same rate.
  
  Alliance and Leicester's* eSaver pays 6.5% AER, yet 0.88% of that's a bonus until 31 Aug 2009; worse still it pays no interest in any month you make a withdrawal (except July) so only use it if you'll leave the cash there till 1st September 2009, then withdraw it all (do that on the first of the month to minimise the impact).
  
  
• Got big savings and want to spread your money for safety?
  
  If you’re concerned about getting maximum safety on your savings, then, as explained in the Are My Savings Safe? article, you shouldn’t have more than £35,000 in any one financial institution. To do that and still get a top rate, use the next highest paying clean accounts:
  
  Anglo Irish Bank's phone and postal Easy Access account pays 6.4% from £1, Icesave* pays 6.3% online from £250 with a long guarantee, Firstsave pays 6.26% if you're saving over £100, ICICI* HiSave pays 6.16% from £1.
  
  IMPORTANT. Icesave, unlike some foreign banks, hasn’t chosen to be completely protected under the UK's Financial Services Compensation Scheme, and thus if, in the unlikely event that it were to go bust, getting the money back could be more difficult. See the Are Your Savings Safe? guide for a full explanation, and Martin’s Icesave safety blog.
  
  
• Got big savings and want to keep your money in once place?
  
  If you've a lot of cash (well over the £35,000 amount) and the safety factor worries you, there are two places that give 100% guarantee on savings, Northern Rock and National Savings & Investments, as they are currently owned by HM government. Yet as the rates don't tend to be that good, be aware that by hedging for safety you're sacrificing interest.
  
  The best paying Northern Rock account is the eSaver which pays 6% AER on balances above £1. With NS&I the best option is its Index-linked Savings.
  
  
• Are you over 50?
  
  If you're 50 or over, Coventry Building Society's online 50 Plus eSave account pays 6.25% AER on all balances from £1. This is guaranteed to stay the same for twelve months (though you can withdraw the cash at any time); after that it drops to match Bank of England base rate .
  
  For something a little bit different, Saga's Online Top 5 Tracker currently pays 6.2% AER to the over 50s on balances from £1. This rate guarantees to stay within 0.25% of the average of the current 'Top 5' internet savings accounts (as decided by price comparison site Moneyfacts), until 31 May 2010, which should mean you get a good, but never table-topping rate until then.
  
  
• Got a big lump of savings?
  
  If you're in the enviable position of having over £1 million to save, Cahoot pays a market-leading rate of 6.55% AER, until 30 April 2009, when it drops to 5% AER. Also beware, if you put over £2 million in it, the rate also plummets, so this is for very specific savers.
  
  
• Want cash machine access to your savings?
  
  The easy way to assure yourself 24-hour access to your cash, is to get a savings account that gives you a cash machine card and allows free withdrawals from any Link machine. Top payer is the Yorkshire BS Internet Saver, with optional cash card, paying 5.7% AER and you only need £1 to open it. The top clean non-web account for this is Bank of Scotland's Instant Access account, also with optional cash card and from £1, paying 5% AER.
  
  The Post Office* Instant Saver requires £500 to open the account and pays 5.75% AER. Yet 1.5% is a year’s bonus, so after that you’d need to ditch and switch, plus it only gives six free cash withdrawals a year, after that it’s £1.
  
  
• Fancy looking locally?
  
  All the above rates are available to anyone, yet some small building societies occasionally offer special rates to people who live in the local area, or to existing members; it's always worth checking yours.
  
  

To see how switching will affect your savings, use the Savings Calculator and input the interest

How to guarantee a continually top rate

Most savings accounts are variable, meaning the rate can change both with the Bank of England's Base Rate and as providers change their competitive stance. It's important to regularly monitor your account's rate and if it plummets, ditch and switch. Yet there are some alternatives to monitoring interest rates.

Fixed rate savings

With fixed rate savings accounts you get a guaranteed rate of interest for a set period, but you can’t take your money out (without huge penalties). Therefore providing you are happy to lock the cash away for the entire term, they can be a good deal.

Currently there are some huge rates available. This is because many lenders are desperate to get hold of your cash so they can lend it out at high rates during the Credit CrunchThe Credit Crunch

This is the name given to the current phenomena that banks and other big financial institutions are struggling to find money to borrow. As they can’t find money to borrow they’ve less to lend out, which means the cost of debt is increasing, and its availability is decreasing. In other words it’s getting more difficult and more expensive to borrow.

Is it worth getting a fixed rate?

The advantage of a fixed rate is you get surety and know exactly what it’ll pay. The problem, as well as your money being locked away, is that you lose the flexibility to ditch and switch to a better payer if the rate is no longer competitive compared to others.

At the current time, fixed rates look to be very competitive, as they pay more than the top instant access deals and economists tend to be predicting the base rate is on a downward trend.

The Current Top Fixed Rate Deals

• One year deals 7.2% AER

  Indian bank ICICI* pays a huge 7.2% AER on balances from £1,000, fixed for a year. You'll also need to get its instant access HiSave* account, but this is decent, paying 6.16% AER. Behind this, Kaupthing pays 7.15% AER on balances from £1,000, again as long as you also have its top pick savings account*.
  
  If you don't want to take out a linked savings account, Firstsave pays 7.1% AER, again from £1,000, on its online 1 Year Bond. All of these are signed up to the Banking Code and therefore are totally covered by the UK compensation scheme meaning the first £35,000 per person saved there is covered (see Are your Savings Safe? for more).
  
  If you've a lot of cash (over the £35,000 amount) and the safety factor worries you then Northern Rock, which gives a 100% guarantee on savings as it is owned by HM government, also has a competitive account. Its 1 year Fixed Rate Bond pays 6.5% AER from £1. This is a good, but not table-topping rate so be aware that by hedging for safety you're sacrificing interest.

• Six month deals. 6.97% AER

  If you want to lock the cash away for slightly shorter Kaupthing's 6 month Fixed Term Deposit Account pays 6.97% AER for amounts above £1,000 as long as you also have its top pick savings account* and Icesave's six months term acount pays 6.86% AER for amounts above £1,000. If you may need the money quite quickly these are a good half way house.

  IMPORTANT. Icesave, unlike some foreign banks, hasn’t chosen to be completely protected under the UK's Financial Services Compensation Scheme, and thus if, in the unlikely event that it were to go bust, getting the money back could be more difficult. See the Are Your Savings Safe? guide for a full explanation, and Martin’s Icesave safety blog.

• Two year deals. 7.1% AER

  For anyone happy to sacrifice long-term access, Firstsave pays 7.1% AER from £1,000, on its online 2 Year Bond.
  

• Other deals / time periods.

  For other lengths and a full list of fixed rate savings accounts use the MoneySupermarket* and Moneyfacts comparisons.