Earn four times as much interest on your savings

Smart savers can quadruple their savings interest by moving to these ace accounts!

There was a slight glimmer of hope for savers this week, as it was revealed that the rising cost of living had slowed slightly.

In October, the Consumer Prices Index (CPI) measure of inflation fell to 5%, according to the Office for National Statistics. Although this is still high compared to the past 20 years, it is lower than the recent peak of 5.2% recorded in September.

This cooling of CPI was caused by a supermarket price war lowering food prices, plus falls in the pump prices of petrol and diesel.

Sickly savings rates

Although any fall -- however slight -- in inflation is welcome, it still leaves CPI at 5%, which is more than double the Bank of England's target of 2% a year.

What's more, inflation has now been above target for 23 months in a row, which is eroding the buying power of our cash. Higher inflation is good for borrowers, as it rapidly erodes their debts. However, it is disastrous for savers, because it undermines the future spending power of their cash.

In addition, savers are suffering because the Bank of England has kept its base rate at a record low of 0.5% a year since March 2009. As a result, savings rates today are plumbing new depths, with thousands of different accounts paying barely any interest whatsoever.

In fact, one recent survey found the average savings rate for UK-based accounts to be a pathetic 0.8% a year. At this rate, each £1,000 on deposit earns just £8 a year in interest. Alas, taxpayers lose between a fifth (20%) and a half (50%) of this interest to the taxman, pushing their after-tax returns even closer to zero.

Beat this savings swindle

Though the average savings rate is 0.8% a year, what your personal cash pot earns will depend on which account(s) it is in. If you are unlucky, then your rate could be much, much lower than this.

Indeed, Which? magazine found that more than one in five savings accounts (21%) pay no more than 0.1% a year in interest, before tax. Which? claimed that 384 accounts pay 0.1% or less, which is nothing short of a savings scandal.

Of course, the simple answer to this national savings swindle is to move your money from awful accounts to ace accounts. By doing this, you could quadruple your interest rate overnight, making your money work four times harder.

To help you ditch and switch, here are 10 table-topping savings accounts that have caught my eye:

1. Easy access

Your emergency savings or rainy-day pot should be in an account that offers instant access, allowing you to dip into your cash without penalty. Here are the two top-paying online accounts in this category:

For savers with smaller sums, the Coventry BS Poppy Online Saver (2) account offers an outstanding rate and easy access on £1 upwards. You can make four penalty-free withdrawals each year, but further withdrawals lose 50 days' interest. Also, this account donates £10 to the Poppy Appeal for every £20,000 deposited (which has raised £5 million for the Royal British Legion since 2008).

The Nationwide BS MySave Online Plus Issue 4 account offers just one penalty-free withdrawal a year. Additional withdrawals lose the 1.58% bonus and earn a rate of 0.1% AER in the month of withdrawal only. Therefore, don't dip into this account more than once a year.

2. No tax to pay

As well as raising your savings interest rates, you should do your best to avoid paying tax, too. The simplest tax-free savings account is a cash ISA (Individual Savings Account).

In this tax year (2011/12), you can deposit up to £5,340 into a cash ISA, with every penny in interest free of tax. From 6 April next year, this limit rises by £300 to £5,640 for the 2012/13 tax year. Thus, in just two tax years, a determined saver could stash away £10,980, free from the taxman's greedy grasp.

What's more, if you're willing to lock away your cash for two to five years, then these fixed-rate ISAs pay top rates of interest:

Although these accounts pay higher rates of tax-free interest, they also put your money in handcuffs for 24 to 60 months. All charge penalties for early withdrawals, so are suitable only for money you're prepared to lock away for long periods.

3. Regular savings

Lastly, what if you don't have a lump sum and, instead, want to set aside a little every month? Regular savings accounts allow you to save a set monthly amount for 12 months and earn decent rates of interest on this cash. Here are the current best buys open to all customers:

All four of these accounts pay 4% a year on savings of as little as £1 a month at N&P to £10 a month at the remaining three building societies. Again, there are penalties for missed payments and withdrawals, so be sure to make all 12 payments (10 at West Brom BS) for maximum reward.

Of course, as you're saving monthly, you don't earn the headline rate of interest for 12 months on all of your cash, as you do with a lump sum. Instead, each payment earns a proportion of the yearly rate, depending on when it is deposited. Thus, your first payment earns 12/12ths of 4%, but your last payment earns just 1/12th of this rate. Nevertheless, these accounts are great for new savers and old hands alike.

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