Guarantee the return on your easy access savings

Find out how to get great rates and protect the return on your easy access savings with a fixed bonus.

Any saver will know only too well how difficult getting a decent return has become. The Bank of England base rate has been held at a record low of 0.5% since March 2009, which has forced saving rates on a downward spiral ever since.

Having said that, there’s a huge difference between the best and worst buys, so it’s still worth your while seeking out the most competitive accounts.

But the trouble is, when it comes to easy access savings accounts, you’ll find the rates are almost always variable. This means the best buy you choose today could easily deteriorate and fall behind the competition at any point in the future.  

How can you protect your return?

If you don’t actually need instant access to your savings, you could guarantee your return by choosing a fixed rate bond or a fixed rate regular savings account instead.

But many of you will still need penalty-free access to at least some of your cash, particularly for emergencies.

One way to get a high fixed rate and easy access to your savings is to stick your money in a high-interest current account, such as those shown in the table below:

These accounts pay market-leading fixed rates and offer instant access - so, on the one hand, they are a great home for your savings. The problem is, they're designed for current account holders who pay in their salary every month. So, for example, with the Santander and Lloyds TSB accounts you must deposit at least £1,000 a month while Alliance & Leicester requires at least £500. And if you over-fund the account, then you earn just 0.1% on your savings (see in-credit interest rate column in the table above).

Related goal

Build up your savings

How to get into the savings habit, find forgotten money, work out the real value of a savings rate and build up that emergency savings pot.

Do this goal

Of course, you can instantly withdraw the money you put into the current account instead of leaving it there - or, if you’re really clever, you could send it to back and forth between all three accounts via standing orders.

But I wouldn't blame you for thinking that sound like a bit too much hassle. So what else can you do to ensure you are guaranteed a good return on your easy access savings?

Look for the introductory bonus

While most easy access savings accounts have variable rates, a handful of accounts offer fixed introductory bonuses, which will guarantee you a decent return for a set period.

Not all introductory bonuses are as good as each other, however. Sometimes the bonus is variable, as well as the standard rate, so it does nothing to protect your return since it can be reduced at any time.

So, if you’re after some peace of mind that your savings rate will remain reasonably competitive now and in the future, you should look out for an savings account with a large fixed bonus.

The table below shows the top seven easy access accounts which include both variable and fixed introductory bonuses. The accounts with a fixed bonus are shown in bold:

7 top easy access savings accounts with a bonus

The market-leaders

The market-leader today is the West Bromwich Building Society Direct Save Bonus Account which pays 2.83%, including a fixed bonus of 1% until 31 March 2011.

Over the next year, your return would average out to 2.83% (variable) in total. But the actual return will be higher before March 2011, and lower once the bonus has disappeared.

Because of the way the rates are applied, it’s a good idea to move your savings next April to the new best buy if the reduced rate you’ll earn at this stage is no longer competitive. This will enable you to take advantage of the higher rate at the outset, but switch when the lower rate kicks in.

I can see why the West Brom account would be attractive to savers since it advertises the best rate for easy access. But the small, short-term fixed bonus does little to guarantee a decent return and provide certainty for savers.

You should also note this account is only available to savers with £1,000 or more.  And, if your balance every drops below £1,000, the rate will nosedive to just 0.88% (variable). Perhaps, even more importantly, this account only offers three instant withdrawals per account year (which runs from 1 May to 30 April). Further withdrawals will also reduce the interest rate to 0.88% (although the bonus will still apply until 31 March 2011) for the rest of the year.

What's worse, this account can only be opened by post or by telephone.

The next two accounts - the Alliance & Leicester Online Saver Issue 7 and AA Internet Extra Issue 3 - both offer competitive rates of 2.81% and 2.80% respectively, but neither comes with a fixed bonus. Since the standard rates and the bonuses are both variable, none of your return is protected. However, you can open them online.

My favourite accounts

My favourite accounts don’t actually offer the highest rates, but they combine competitive returns with peace of mind.

The Egg Savings Account Issue 2 is one of my top choices because 2.30% of the 2.80% rate is fixed. This means you can be absolutely sure the rate won’t drop off dramatically because a minimum return of 2.30% is guaranteed for the next year.

That said, your savings will earn an underlying internet rate of just 0.50% once the year-long introductory bonus period is over so you’ll need to switch at this stage.

But I think the star buy of the selection is the ING Direct Savings Account which pays a guaranteed rate of 2.75% for a year. Technically, the account doesn’t actually offer a fixed bonus, but it has the same effect by protecting your return with a fixed rate. So, with ING you know exactly where you are for the next 12 months.

But there are a couple of drawbacks: the ING Direct Savings Account is only available to new customers, which is bound to put existing customers’ noses out of joint. Secondly, despite the excellent guarantee, you will have to switch after 12 months because the rate will fall to the ING Direct Savings Account variable rate which is currently just 0.50% too.

If you've got a question about savings rates or about the best places to put your own savings, why not head over to Q&A to get free advice from other lovemoney.com readers?

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