Five Ways You Can Still Earn 6%+ On Your Savings

Are you struggling to get a decent return on your savings? Here are five not-so-obvious ways of beating low interest rates.

This article has already been sent to readers as an 'Afternoon' email.

Uh-oh! The base rate has fallen to a new all-time low - it's now a tiny 1%. This will please some borrowers, but it's very disappointing for all savers. It means savings rates which are already pretty pathetic - will almost certainly deteriorate further in the coming weeks.

But there is something you can do about it. Here are five not-so-obvious ways you can still earn a return of 6% - or more - on your savings:

1. Try a current account instead

One way to guarantee a decent return is to put your savings in a market-leading current account, rather than a savings account. The best buy is Alliance & Leicester Premier Direct Current Account which offers a generous 6.5% AER on balances up to £2,500. This return is fixed for 12 months which will protect your savings from more rate cuts.

Of course, a deal this good comes with drawbacks: Balances over £2,500 will earn a measly rate of 0.10%. So I would suggest you move the excess into a separate account which offers a better return.

After the year is up the rate will then be equivalent to the base rate minus 1%. Today that would give you a return of precisely 0%. If the base rate is still low in 12 months' time, you'll need to move your cash to a new account.

You'll also need to pay in at least £500 a month, but this shouldn't be too much of a problem as you can pay in some - or all - of your salary.

If you're over 50 try the A&L Premier 50 Current Account. Here you'll earn the same great rates, but even better if you switch to A&L using the Premier Switching Service you'll earn yourself a £100 bonus! What's more, there's no need to fund the account with £500 every month either.

2. Fixed rate ISAs

If you're happy to tie up your money for a few years, you can lock into a higher rate with a fixed rate Cash ISA. Rates on fixed rate ISAs have fallen considerably in the last few months, but there are still some pretty decent returns if you look hard enough.

One of the best is the Fixed Rate Halifax ISA Saver. If you choose a four-year term, you'll earn a rate of 4% AER (rates are slightly lower for shorter terms).

Hang on a minute! This article is supposed to be about returns of 6% plus. But don't forget Cash ISAs rates are tax-free. For a higher rate taxpayer, a rate of 4% is equivalent to return of 6.66% in a taxable account. While, for basic rate taxpayers the equivalent return is 5%. (Ok, I admit I cheated a bit on that one, but these are still good rates in the current climate!)

Fixing your return now could be a pretty smart move because it looks like it could take some time for interest rates to recover. And if it's tax-free, even better!

3. Fixed rate ISAs with access

If you want to be able to get your hands on some of your cash, try the new Leeds Building Society 5-Year Escalator ISA instead. The account pays an annual tax-free return of 4%* for the next five years, but you'll get unlimited, penalty-free access to 25% of your initial capital before maturity.

Don't forget with a Cash ISA you can save up to £3,600 as a maximum per tax year.

4. Invest in a corporate bond fund

A corporate bond is essentially a loan to a company where investors receive a fixed interest rate in return. You can invest in a corporate bond fund where the fund manager will buy a range of bonds in the hope of delivering a decent return to investors.

The credit crunch has forced the value of bonds to fall while yields have risen sharply. For example, the popular Invesco Perpetual Corporate Bond fund has a current gross yield of 6.27%, which looks tempting when the average savings account is now paying less than 1%.

But and it's a big but your capital is not guaranteed, and the yield isn't guaranteed either. There's a risk that companies held in the fund could go into default, which will obviously pull the return down. And there's a risk that your corporate bond fund manager will buy the wrong bonds.

That said, if you're prepared to take on the extra risk in the hope of earning a better return, make sure you fully understand the investment.

Bonds come in two distinct types: Investment grade and high yield. Investment grade bonds are considered better quality with a lower risk of default. Meanwhile high yield bonds also known as junk bonds are riskier, but the yield is normally higher to compensate. Note that some funds invest in a mix of both types.

5. Lend through Zopa

Zopa is an internet-based peer-to-peer lending business which allows lenders to earn attractive returns while borrowers can get their hands on cash at competitive rates. The average return earned in 2008 was an impressive 9.1%. That's after an annual fee of 1% for lenders, but before bad debt.

You can choose to lend through Zopa markets for three or five years, and set the rate of return you want to earn on the money you lend out. But, don't forget, there is a risk of default if borrowers are unable to repay their debt to you, although Zopa say the default rate is low at 0.18% on all money loaned out so far. For more information, visit www.zopa.com.

Compare all sorts of savings accounts here.

*The return is broken down as 3% in year one, 3.50% in year two, 4% in year three, 4.50% in year four and 5% in year five for accounts paying annual interest.