Ditch these truly terrible savings accounts

There are a whopping 223 savings accounts paying less than 0.5% a year. That's truly terrible!

These are truly tough times for British savers.

Three years ago, in March 2009, the Bank of England slashed its base rate to 0.5% a year, where it has remained ever since. As a result, savings interest rates have fallen dramatically.

What's more, stubbornly high inflation, rising unemployment and falling disposable incomes have piled the pressure on savers. This has kept the UK savings ratio (the proportion of our take-home earnings which we save) at relatively low levels.

In the Seventies, our savings ratio averaged 7.9% and it rose to 8.9% during the Eighties and Nineties. However, in the Noughties, it more than halved, plunging to just 4.3%. Since then, we've started to save harder, with the savings ratio leaping to 7.4% in the second quarter of 2011.

Inferior interest rates

One of the biggest barriers to saving is the pathetically low rates of interest paid by thousands of different savings accounts.

While table-topping savings accounts offering easy access pay 3% a year or more before tax, the vast majority of savings accounts -- possibly including yours -- pay far lower returns to savers.

In fact, I found 223 different savings accounts that pay less than the Bank of England's base rate. In other words, these accounts pay interest of less than 0.5% a year. For a balance of, say, £500, that comes to under £2.50 a year -- and that's before tax is deducted.

223 awful accounts

I asked financial data experts Moneyfacts for a list of all UK savings accounts paying less than 0.5% a year on a balance of £500. Here is my breakdown of these awful accounts:

Source: Moneyfacts, 05/02/03

As you can see, 93 of these accounts pay interest of just 0.1% a year, making this the most 'popular' category for all savings accounts. Only 43 accounts pay interest of more than 0.25% a year, while 181 have interest rates below this level. Incredibly, one account pays zero interest on £500, so it shouldn't be considered a savings account at all.

Across all 223 accounts, the average yearly rate is a mere 0.17%, which works out at interest of £1.73 on a balance of £500. Frankly, this is nothing short of daylight robbery.

Here are the 26 worst offenders, all paying a rate of less than 0.05%. For the full rundown of the 223 worst savings accounts in the UK, follow this link.

Ditch and switch today

Don't sit idly by if you're receiving a rubbish rate of interest on your savings. It's time to switch from truly terrible to table-topping accounts. Here are four much happier homes for your emergency fund, rainy-day money or nest egg:

If you have £10,000 or more and are prepared to lock away this money for five years, then Scottish Widows Bank will pay you a bumper rate of 4.70% a year before tax. Alternatively, you can earn a fixed rate of 3.25% for a year on upwards of £500 at the Post Office.

On the other hand, if you don't want to put your money in handcuffs, then choose an easy-access account. The above Santander account pays 3.1% a year on balances above £1, which includes a bonus of 2.56% for the first year.

Finally, the Post Office offers a no-strings savings account paying 3.01% on £1 or more, which includes a bonus of 1.33% for the first year.

More: Start saving for a rainy day | A new top instant access ISA | The 38 savings accounts that beat inflation