Earn Over 12% On Your Savings!

If you'd like to earn ultra-high rates of interest on your spare cash, here's where to go.

If you're prepared to jump through a few hoops in order to earn superior returns on your savings, then a regular-savings account might be just up your street. The good news is that it's possible to earn over 12% a year on your spare cash before the taxman takes his cut!

For example, Barclays today increased the rate on its Regular Saver account to its highest-ever rate of 12.5% a year before tax, a 25% increase on the previous rate of 10% AER. The new rate will be paid on all accounts opened in the first two months of this year, so this offer ends on 28 February 2007.

Inevitably, this account comes with strings attached. Here they are:

• Only one account can be opened per person, and the interest rate is fixed for twelve months.
  
  
• You must make twelve monthly deposits by standing order of between £25 and £250, which adds up to a maximum pot of £3,000 over the course of a year. If you fail to do this, the measly rate of interest paid by the Barclays Easy Saver account will apply.
  
  
• You can vary the amount which you pay in every month, subject to the above limits, but no withdrawals or additional deposits are permitted.
  
  
• The account is open to new and existing customers, but you must pay at least £1,000 a month into a Barclays current account in the form of a salary or pension.

For every £100 a month saved into this account, you'd get back a lump sum of roughly £128.16 after a year. Thus, £250 a month for an entire year would produce a pot of almost £3,204 before tax is deducted.

I'm quite a fan of regular-savings accounts, particularly because they're great for saving up for a large future expense, such as a holiday, car/house deposit and so on. However, I checked Barclays' bank accounts to see what's on offer and discovered that they are far from being Best Buys -- more like Don't Buys!

Hence, I don't fancy moving my current account to Barclays simply to take advantage of this ultra-high interest rate, because what I'd gain in savings interest, I'd lose in interest on any credit balance in a Barclays current account.

Of course, dozens of other banks and building societies offer regular-savings accounts. Here are three other Best Buys (according to independent financial analyst Moneyfacts, which powers the Fool's search engines for savings and current accounts):

• The Alliance & Leicester Premier Regular Saver pays 12% AER on between £10 and £250 a month;
  
  
• The HSBC Regular Saver 2 pays 8% AER on £25 to £250pm; and
  
  
• The Lloyds TSB Monthly Saver pays 8% AER on £25 to £250pm.

However, these three accounts also have current-account requirements, so they don't ring my bell.

In summary, if you can meet the terms and conditions of regular-savings accounts and would like to automate your savings habit, then these accounts may be ideal for you. Nevertheless, always remember that they are used primarily by crafty marketing departments as a lure to encourage better-off customers to switch their current accounts between banks, so be sure to read the small print before signing up!

More: Use the Fool to find super savings accounts and cracking current accounts!