Earn 12% A Year (With Strings Attached)

Savings and ISAs

14 August 2007 | 0 Comments

Most Best Buy savings accounts pay roughly 6% a year before tax. However, sneaky savers can earn between 7% and 12%!

Aaron Levenstein, professor emeritus at Baruch College, New York, once remarked: "Statistics are like a bikini. What they reveal is suggestive, but what they conceal is vital."I believe that this terrific witticism also perfectly describes financial advertising. For example, it could easily be changed to read: "Savings rates are like a bikini. What they reveal is suggestive, but what they conceal is vital."In other words, before you commit your money to a savings account with an eye-grabbing rate, be sure to look below the surface to uncover the nasties lurking in the small print. For example, the Bank of England's base rate is presently 5.75% a year, so you should aim to stash your cash in a savings account which pays a before-tax interest rate in excess of this level.Here are three of my favourite everyday savings accounts -- the pick of the current crop for your emergency fund, rainy-day money or nest egg:Best Buy easy-access/no-notice savings accounts(excluding notice accounts, accounts with introductory bonuses, fixed-rate and fixed-term accounts)Savings accountGross rate(% AER)Minimumdeposit (£)NotesICICI Bank HiSAVE6.301Rate guaranteed to exceed base rate by at least0.25% to 31/12/07.Sainsbury's Bank Internet Saver6.251Rate guaranteed to exceed the average rate paid byover 100 similar accounts until 31/12/10.Icesave Easy Access6.20250Rate guaranteed to be at least 0.25% above baserate to 01/10/09 and then at least equalto base rate to 01/10/11.So, if you have £1 or more to save and are willing to manage your account via the Internet, then your savings pot can earn more than 6% a year before tax. However, you can easily beat these rates, simply by taking advantage of special-rate deals which come with strings attached. To put it another way, if you're prepared to jump through a few hoops, then you can earn super-high rates of interest.So, let's take a look at what's on offer at the extreme end of the savings spectrum. For the sake of argument, let's say that you have a spare £250 a month to save. Here's what you could earn, according to Fool.co.uk's independent, unbiased savings search engine:1. Alliance & Leicester Save & ProtectThe great rate: 12% AER, fixed for a yearThe catch: You can pay in £10 to £250 a month for one year, with no withdrawals. This account is only open to existing Premier Current Account or Premier Direct Current Account customers who buy a life, life and critical illness or critical illness policy from Legal & General.Gimmick rating: 10/10. This is an eye-catching but far-from-useful account from A&L.2. Alliance & Leicester Premier Regular Saver 4The great rate: 12% AER, fixed for a yearThe catch: You can pay in £10 to £250 a month for one year, with no withdrawals. This account is only available to new A&L Premier Current Account customers who have not had an A&L current account in the previous three months.Gimmick rating: 8/10. This is not an outright gimmick, because A&L's new generation of current accounts are far better than the traditional accounts offered by its high-street rivals. Although the Premier Current Account offers a 0% overdraft for a year and 7.9% AER thereafter, it pays only 1.50% AER on credit balances under £2,500 and 0.10% AER on any excess balance over £2,500. The Alliance & Leicester Premier Direct current account is miles better.3. HSBC Preferential Regular SaverThe great rate: 10% AER, fixed for a yearThe catch: You can pay in £25 to £250 a month for one year, with no withdrawals. This account is only open to new and existing HSBC Premier, Plus or Passport current account customers who pay their salary or pension into these premium current accounts.Gimmick rating: 8/10. This is less gimmicky than the above A&L accounts, but the barriers to entry are still high. Then again, at least it's open to existing as well as new customers.4. Newcastle BS Regular SaverThe great rate: 10% AER, fixed for a yearThe catch: You can pay in £50 to £250 a month for one year, with no withdrawals. This account is only open to new money to Newcastle BS, and savers must invest £5,000 in a Newcastle BS index-linked investment bond.Gimmick rating: 10/10. In order to save £3,000 over the course of a year, you must invest £5,000 into a type of investment bond which I really dislike. No thanks!5. Abbey Super Monthly SaverThe great rate: 9.96% AER, fixed for thirteen monthsThe catch: You can pay in £20 to £250 a month for thirteen months, with no withdrawals. This account is only open to customers who have at least one of: an Abbey bank account into which at least £1,000 a month is paid; an investment product (but not a Guaranteed Income Bond or Child Trust Fund); and an Abbey pension or protection plan.Gimmick rating: 9/10. As this account lasts for thirteen months, I guess the marketing gurus at Abbey don't suffer from triskaidekaphobia (an irrational fear of the number thirteen)!That's the accounts for adults which pay 10%+ a year out of the way, so now let's review the second tier of super savings accounts:Regular-savings accounts paying 8%+ a year(Please note that the accounts in italics are only for children's savings.)AccountInterestrate (% AER)NotesHalifax/Bank of ScotlandChildren's Regular Saver10.00£10 to £100 a month for a year; no withdrawals.Derbyshire BSLoyalty Saver8.00(for members often years or more)Open to existing members only. Can save between£10 and £250 a month. Four withdrawals per year;any more and the account will be closed.HSBCRegular Saver8.00£25 to £250 a month for a year; no withdrawals.You must have an HSBC bank account into whichyour monthly salary or pension is paid.Lloyds TSBMonthly Saver8.00£1 to £250 a month for a year; can miss paymentsand make withdrawals. Must have a Lloyds TSBcurrent account.Norwich & Peterborough BSGold Savings8.00£20 to £250 a month for a year; no withdrawals.Only for N&P Gold Current Account customerswho pay in a monthly salary of £1,000+.Regular-savings accounts paying 7%+ a yearAccountInterestrate (%) AERNotesSkipton BSChristmas Saver7.77£10 to £150 a month until 24/11/07; no withdrawals.BMW SavingsBMW Car Saver7.50£1 to £250 a month for a year; no withdrawals.Open only to BMW eSaver customers.120 days' interestlost unless pot used to purchase a new BMW car or bike.Leek United BSRegular Saver7.50£10 to £250 a month for a year; no withdrawals.Nottingham BSChildren's Regular Saver7.50£10 to £100 a month until 16/07/08; no withdrawals.Coventry BS Family 1st (Benefit a/c)7.25Rate fixed for one year; 6.25% in year two; base rate inyear three. Must pay Child Benefit into this account.Must make ten deposits per year to avoid closure.AbbeyFixed Monthly Saver 67.23£20 to £250 a month for 13 months; no withdrawals.Ipswich BSTarget Saver 37.15£90 to £250 a month for a year; no withdrawals.Yorkshire BSRegular Saver7.10£10 to £500 a month for a year; one withdrawal allowed.Halifax/Bank of ScotlandRegular Saver7.00£25 to £250 a month for a year; no withdrawals.Bath BSRegular Saver7.00£20 to £250 a month for a year; one withdrawal allowed.Open to local residents only (Avon, Dorset, Gloucestershire,Somerset and Wiltshire).If it helps, think of regular-savings accounts as one-year bonds which pay a fixed rate on your monthly savings, but don't allow any withdrawals until the bond has matured. Speaking of maturity, you should withdraw your savings as soon as the preferential rate ends, or your pot will be transferred into a distinctly inferior account.In summary, with a monthly standing order or direct debit and £10+ a month to spare, you can earn over 7% a year before tax on your savings. Not bad, agreed?More: Check out the great rates in our Savings centre | Why Pay Tax On Your Savings? | When Saving Gets Sexy

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