The Smartest Savings Account In Britain

This account has an attractive rate, provides true instant access and is offered by one of the safest banks in the world.

This article was first sent to Fools as an email in our 'Afternoon' series.

Until recently, savers seemed to be the big winners of the credit crunch. As the money markets ran dry, banks became desperate to rake in more deposits from customers. Luckily, for those of you with a bit of spare cash, savings rates became more and more attractive as banks battled each other to win your business.

But, sadly, all good things must come to an end. As you know, the long-time market leaders -- Icesave and Kaupthing Edge -- have already bitten the dust in the global banking crisis. And I wouldn't blame you if you have a sneaking suspicion that the banks which are offering the best returns could be harbouring a weak financial position. (Of course, this isn't necessarily the case.)

These days, it's more difficult to find a safe haven for your cash, so where is the smart money going? My choice would be an instant access savings account which has these three magic ingredients:

1. A really attractive rate,

2. True instant access,

3. Held with a `safe' institution.

Fortunately, I have just the ticket -- the Abbey Instant Access Saver (Special Issue 2).

Great rates

With this new account, Abbey is offering a competitive rate of 6.00% AER. Given that the Bank of England base rate has now been cut to 4.50%, this is a pretty generous return. But don't forget the rate includes a 1% introductory bonus for the first year, so you'll need to check the reduced rate still measures up well once the bonus has disappeared.

True instant access

I'm really not at all keen on banks who market their savings accounts as `easy access' only to penalise you when withdrawals are made at the wrong time or when you take cash out too often.

Thankfully, Abbey isn't one of the culprits. You can get your hands on your cash as often as you like, and there are no penalties - as long as you maintain the minimum balance.

The minimum balance is, however, a bit of a sticking point. The account must be opened with a fairly high minimum sum of £1,000. And you must keep £1,000 in the account at all times to keep earning the 6.00% rate. If your savings drop below, you'll earn a measly rate of 2.75%.

`Safe'

How safe are my savings? That's the question on every saver's lips. Unfortunately, I can't give any 100% cast iron guarantees that Abbey -- or any other bank for that matter -- will always be secure. But what I do know is that keeping your money under the mattress definitely isn't a smart option, so you have to put it somewhere.

Remember that Abbey is owned by Spanish giant, Santander. Santander is the seventh largest bank in the world by profit and the largest bank in the Eurozone.

On top of that, Santander's Credit Default Swap (CDS) spread is fairly low. Put simply, a CDS spread is a measure of financial strength and essentially indicates how likely the market thinks a bank will fall into default. So today, at least, the market is fairly confident Santander's can meet its financial obligations to its savers. (Find out more about CDS spreads here.)

Crucially, Abbey is one of the few British banks to turn down extra cash from the government's £37 billion bail-out. Instead, Abbey and Alliance & Leicester -- also part of the Santander group -- have together taken a cash injection of £1 billion from Santander in mid-October.

That said, question marks have been raised over the security of Santander itself, primarily because of its exposure to the troubled UK and Spanish economies, and its presence in the emerging Latin American market.

Nevertheless, Abbey has still attracted £1.4 billion in deposits from savers in the third quarter of 2008. And over the first nine months of the year, deposits were 70% higher than the same period in 2007, proving its accounts have become even more popular with savers.

So, in my opinion, if you have a £1,000 or more to save, the new Abbey Instant Access Saver account looks like a sensible choice.

More: Four Solid Savings Accounts | Britain's Best All Round Bank? | The Best Savings Plan In Britain!