8.5% Fixed Savings Rate - With Easy Access

You can still get an 8.5% return on your savings....

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

What we should be looking for in an easy-access savings account is:

A good interest rate. Typically, these days, that's around 6%.

A great guarantee. These are almost impossible to find now.

True easy access.This means you can withdraw your money at any time without penalty.

Relatively safe from a possible bank collapse. This has become more important for many people these days.

Great guarantees used to be linked to the Base Rate, but with the best savings accounts now paying around double the Base Rate, these guarantees are redundant. Now a more attractive guarantee is a fixed rate. Problem is, these are not a common feature of an easy-access account. However, we can improvise an account that ticks all these boxes, and has the best interest rate:

Improvise yourself a perfect, table-topping savings account

We do this using Alliance & Leicester's Premier Direct account. I say improvise, because it's not a savings account at all, but a current account. However, it fulfills all our criteria:

A good interest rate. In fact it's an outstanding interest rate at 8.5% AER. This wallops all the best easy-access savings accounts, which, with many rates falling 1.5% last week, are more like 6%.

A great guarantee. The rate is fixed for one year. That's great when rates are expected to fall. What's more, it's extremely rare that the best easy-access interest rate available is fixed!

True easy access. Like just about any personal current account, you can take money out whenever you like without charge or penalty.

Relatively safe from a possible bank collapse. Alliance & Leicester is probably one of the safest banks in the UK at present.

Catch # 1

Of course there's a catch. Two rather. Catch one is that you get this rate just on the first £2,500 in the account. Anything over this attracts a pathetic rate that's not worth mentioning in a savings article. However, we can all still use this account to boost our average savings rate:

If you have no savings, or savings of £2,500 or less

If you have savings of £2,500 or less, you can earn the full 8.5% AER. Here's how it works for you:

Interest earned on £2,500 in the Alliance & Leicester Premier Direct account

So, that's between £170 and £213 interest in a year, depending on your tax status.

Even if you have no savings, you can still boost the interest you get by switching to this bank account. If you're paid, say, £1,200 per month, you could expect maybe £6 or £7 interest per month, or £70 or £80 in the year. (It varies because the amount in your current account does.)

If you have £5,000 in savings

If you have £5,000 in savings, you could still boost your savings-interest rate from, say, 5.5% (most of you won't be earning more than that at present) to 7% by moving half your savings to the Alliance & Leicester account. With inflation likely to fall somewhat over the next months, this switch should see you actually making a little money, rather than simply slowing the negative impact of rising prices.

Here's how your earnings would look in a year:

Interest earned on £5,000

A further advantage for the safety conscious is that you've split your savings between banks. If one goes down, you'll still have immediate access to the other half of your cash.

Catch #2

Catch two is that you must pay in £500 to the A&L account every month, but that figure isn't insurmountable for most people. You can pay in by cash or cheque (or you can have your salary paid in, but then you would be using this as a current account, not a savings account). Therefore you could transfer £500 to your `normal' current account just one day before you pay in £500 to this A&L account in your branch.

One more tip

If you're a married couple, try opening two separate accounts to double the amount on which you earn 8.5%!

> Compare current accounts and savings accounts