Who Is Winning The Savings Rate War?

Banks and building societies are fighting tooth and nail to win the savings race. This is great news for you...

The simple answer is: You are! These days, banks are so desperate for your money they are resorting to all manner of tactics to win your business.

If you have some spare cash to save, there's now a whole raft of savings accounts on offer with rates that are well above the base rate. That's all thanks to the credit crunch, which has left many banks in dire need of deposits from savers just like you.

A Great New Savings Account

Today, Bradford & Bingley launches the easy access Internet Saver 3 account, which pays an impressive rate of 6.51 per cent AER.

What's interesting is the rate on offer is exactly the same as the current market-leader -- the Premier Bonus account (Issue 3) from Manchester Building Society. This means the new Bradford & Bingley account will shoot straight to the top of best buy tables everywhere, even though it has simply matched what is already available to savers.

This is really nothing more than an alphabetical advantage. A cunning little trick, I think you'll agree.

That said B&B has come up with a pretty good account nevertheless, but you've got to be quick because it's only available for a limited period. 

You'll need just £1 to get started, putting it within reach of all you savers. And the rate on offer is guaranteed -- at least -- to match the base rate until 1 January 2010.

Here at The Fool we like interest rate guarantees because it indicates the bank in question is committed to offering a competitive account now and in the future, giving savers peace of mind that they won't be left with a rubbish rate further down the line.

And B&B's account appears to have the edge over its competitors too. 

Although rival, Manchester BS offers an equivalent rate, it includes a bonus of 1 per cent, which drops away after twelve months. This could mean the rate you're left with may not measure up next year. Plus you'll need a much higher opening deposit of £1,000 and there's also no interest rate guarantee.

Even better, you can make withdrawals from the B&B account whenever you like -- without notice and without penalty. This is a really attractive feature, since many of the top savings account claim to be easy access, when in fact there are significant restrictions on taking money out.

For example, Manchester BS may offer a great rate, but just four withdrawals are allowed per year. If you take cash out more regularly, the rate will fall significantly. Meanwhile, the e-Saver from Alliance & Leicester pays a healthy 6.50 per cent, but free withdrawals can only be made in July. Money taken out at any other time will result in loss of interest for the whole month.

Stealing Thunder

Overall, B&B's Internet Saver seems hard to beat....or so I thought. But stealing its thunder is Birmingham Midshires, who has also chosen today to increase the rate on its e-Saver account (Issue 2) by a quite ludicrous 0.01 per cent. But crucially, this means the rate now tops the tables at 6.52 per cent, forcing B&B down into second place.

Like B&B's account, Birmingham Midshires really does offer easy access with penalty-free, unlimited withdrawals and a minimum deposit of £1. But it pips B&B to the post with that sneaky 0.01 per cent higher rate!

It certainly seems like the banks are fighting each other hard to take the top spot. I'm beginning to wonder whether the launch of a new account paying 6.53 per cent is on the horizon!

For now, Birmingham Midshires may be winning the battle -- albeit by a whisker -- but will they win the war?

As the credit crunch brings even more great news for savers, hot competition means you can snap up a fantastic savings account today.

Find a great savings account at The Motley Fool Savings Centre.

More: If you prefer regular savings, read Earn 10% On Your Savings | If you want to lock your money away in a fixed rate bond, take a look at Join The 7% Club