25 great places to stash your cash

You can make bumper returns on your cash by locking it away in these ace accounts!

Since March 2009, the Bank of England's base rate has been firmly stuck at an all-time low of 0.5% a year. While ultra-low rates are great for mortgage borrowers, they've caused savers huge stress.

What's more, with savings rates plunging to lifetime lows, it's almost impossible for cash deposits to beat the steeply rising cost of living. Right now, inflation is running at 5.2% a year, which beats 99.9% of savings accounts hands down!

Handcuff your cash

One way to fight back against low savings rates is to lock away your cash for pre-arranged periods.

By 'handcuffing' your cash for a year or more, you can dramatically boost the returns it earns. Therefore, if you're happy not to touch your cash for an extended period, then these accounts may be right up your street...

One-year bonds

Here are five of the top one-year, fixed-rate bonds available today: 

As you can see, these bonds pay rates of between 3.41% and 3.55% before tax over one year. Of course, before putting money into these accounts, do check the small print for any restrictions and penalties.

Two-year bonds

Here are five table-topping two-year bonds: 

If you have at least £500 to £1,000 that you're willing to squirrel away for two years, then you can earn pretty close to 4% a year before tax. Not bad, but we can do better.

Three-year bonds

Here are five of the best three-year bonds: 

At last, we've cleared the 4% mark, with cash stashed away for 36 months earning between 4% and 4.21% before tax. In fact, the AA will let you open its three-year bond with just a quid.

Five-year bonds

Here are five leading long-term bonds: 

* Must have or open a State Bank of India savings or current account

To be honest, I wouldn't be happy to tie up my cash for five years in a fixed-rate savings account. After all, interest rates are certain to rise during this period. Instead, I'd probably take more risk by buying shares in quality companies that pay generous cash dividends to their shareholders.

Even so, brave savers willing to lock away their cash for 60 months can earn between 4.25% and 4.65% a year for five years. The AA and Birmingham Midshires will allow you to open one of these ace accounts with as little as £1.

Five more ways to set aside your cash

One simple way to earn more interest on your spare cash is to avoid paying tax. You can do this by opening a cash ISA (Individual Savings Account), which pays tax-free interest.

In this tax year, you can deposit up to £5,340 into a cash ISA, but this limit rises to £5,640 for the 2012/13 tax year. If you're willing to lock away your cash in a fixed-rate ISA, then these deals should appeal:

Three top fixed-rate cash ISAs 

Remember that these are tax-free rates, so what you see is what you get -- the taxman can't touch this savings interest.

Social lending: Zopa and Funding Circle

My final two ways to boost the returns your cash earns don't involve savings accounts at all.

Instead of lending your money to a bank and getting interest from it, why not become a lender yourself, earning interest from your own borrowers? In other words, become a bank by lending your money to individuals or businesses at rates much higher than you'd earn in any savings account.

The biggest name in P2P (peer-to-peer) social lending is Zopa, which has been around since 2005. I was an early Zopa lender, lending thousands of pounds to dozens of different borrowers and getting every penny back, plus a high rate of interest.

A £5,000 loan over three years to Zopa's best-rated A* borrowers attracts an interest rate of 8.2% APR, for a total amount repayable of £5,632.92, including Zopa's fee of £130. The remaining £500 or so of interest is yours, which is a very attractive return over three years.

In similar fashion, Funding Circle takes your money and lends it to small businesses of your choice. The average yearly yield is 8.4% (before fees and bad debt) and you can sell loans to (or buy loans from) other Funding Circle lenders.

However, unlike banks and building societies, social-lending sites such as Zopa and Funding Circle aren't covered by the FSCS compensation scheme, so you can't rely on the usual £85,000 savings safety-net.

What are your best tips for boosting the returns on your spare cash? Please tell us in the comments box below!

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