Top savings options to suit everyone

We highlight the best accounts for every sort of saver.

A few years ago, fixed rate bond accounts seemed a very attractive saving option. Now, the base rate is at an historic low, and the rates offered by these bonds have shrunk too.

The economic climate remains extremely uncertain. If you lock your money into a fixed rate bond now, you risk interest rates rising and you and your rate being left far behind.

With this in mind, I’m going to examine three savings options that offer greater flexibility, juicier returns, and occasionally even both!

If you need flexibility

If you think you may need to get your hands on your savings at short notice, an instant access savings account (also known as an easy access account) is a sensible choice.

Most instant access accounts allow you to start small, depositing what you can, when you can. And the best ones won’t charge any penalty fees if and when you choose to withdraw cash.

You can read our guide to instant access accounts right here.

My top pick

I think the best instant access account around is the Poppy Online Saver, from Coventry Building Society.

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It pays a rate of 3.1% AER - the best in the instant access market. You can choose to have the interest paid either monthly or yearly, and you can start saving from just £1. The account is operated online, and has a maximum deposit limit of £250,000.

And there’s a small feel-good factor, too: Coventry Building Society promises to donate a sum equal to 0.05% of the average balance held in Poppy Online Saver accounts (for each 12 month period) to The Royal British Legion.

However, there are some caveats to bear in mind. First, you’re only allowed to make four penalty-free withdrawals every year. If you make any more, you’ll be charged a penalty equivalent to 50 days’ interest on the amount withdrawn.

Second, that 3.1% rate includes a 1.1% bonus rate, which only last 12 months. After this period, you’ll almost certainly have to switch your savings to another account to stay competitive.

If you want a good reason to become a better saver

If you’re able to commit to saving a certain amount each month - and leaving it alone - a good regular savings account will give you a much juicier, fixed rate of interest.

In addition, because this sort of account forces you to save on a monthly basis, taking one out can be a great way to get into the saving habit. Here’s our guide to regular savings accounts.

My top picks

I have two favourite accounts in this category:

The first is the Regular Saver Adult, from West Bromwich Building Society. It pays 4.1% AER for 12 months - the highest ‘no strings’ rate on offer in this category.

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You’re allowed to save between £10 and £250 every month, and can operate the account in-branch or by post (you’ll need to set up a standing order to make the regular payments). Interest is paid on the anniversary following the opening of the account.

This account is slightly more flexible than many of its counterparts: you are allowed to miss up to two monthly payments during the year, without being penalised. If you miss any more, however, your rate will drop to a measly 0.5% for the entire year.

Just remember that you’re not allowed to make any withdrawals during the term of the account.

My second choice is the Regular Saver Account from First Direct, which pays a whopping 8% AER for 12 months.

You can deposit between £25 and £300 each month, and can operate the account online or by phone. If you don’t save the full £300 in any given month, you can even carry over any unused amount to the following month.

On the downside, this account is only available to existing First Direct current account customers.

That means if you’re not in this position already, you’ll need to think carefully about whether you want the hassle of switching current accounts to access a savings account that will only last a year.

Any deposits have to be made via standing order from the linked current account. And you’re not allowed to miss any payments - or make any withdrawals - during the year.

On the plus side, having a current account with First Direct is no bad thing, as its 1st Account is the sexiest account in the UK!

If you’re determined to beat inflation

At the moment, the rate of inflation (the CPI measure as of June 2011) stands at 4.2%. Unfortunately, this is higher than the interest rates offered by most savings accounts, and means that in real terms, savings in these accounts are shrinking.

If you’re determined to grab an inflation-beating rate of interest, think about taking out an inflation-linked account. This sort of savings product is guaranteed to track and beat the rate of inflation.

These accounts aren’t always the most competitive on the market. For example, you may get a poor return on your cash during periods of low inflation.

And they tend to require you to lock your money away - so the savings rates offered by other accounts may rise suddenly and outstrip yours.

However, in the current economic climate, an inflation-linked account is definitely worth considering.

My top pick

The best one I’ve found is the 5 year Index-Linked Savings Certificate (issue 48) from National Savings & Investments (NS&I).

This pays a yearly rate of the annual RPI inflation rate plus 0.5% AER. This is an average rate over five years.

The way the interest is worked out is actually fairly complicated, because rates are tiered: you get a different fixed rate for each year you keep the account. You can find out exactly how the interest is calculated here.

This account also comes with the huge bonus that it’s tax-free - in other words, the interest you earn on your savings will not be taxed. This is because NS&I is run by the government, and so can operate tax-free accounts.

You can deposit between £100 and £15,000, and apply online, by post or over the phone. And for an account with so many other benefits, it’s surprisingly flexible. No index-linking or interest is paid if a withdrawal is made during the first year, but after this period you can make withdrawals penalty-free.

NS&I savings certificates of this sort are usually in high demand, and the numbers released are often limited. To find out more and apply online, visit this page of the NS&I website.

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