Why earn an inferior interest rate on your savings when you can earn table-topping rates in a current account? We reveal the Best Buys.
A saver's Golden Goal is simple: to maximise the interest earned on any money sitting safely on deposit in a bank or building society. However, this is a far from easy task, thanks to the wide variety of different accounts on offer. Who wouldn't be confused when faced with choosing between over four thousand different savings accounts?
Nevertheless, a sensible saver's first port of call should always be cash mini-ISAs, which pay tax-free interest, often at headline-grabbing rates. ISA interest rates are hard to beat, because the taxman doesn't snaffle a fifth (20%) of your interest (or 40% if you're a higher-rate taxpayer). Learn more about cash mini-ISAs here.
After putting the maximum £3,000 per tax year into a Best Buy cash mini-ISA, your next task is to find a Best Buy haven for any other spare cash which you have gathering dust in substandard savings accounts. According to the Fool's savings search, which is powered by independent financial researcher Moneyfacts, these easy-access accounts pay the highest rates of interest on a balance of £1,000:
Provider/ | Interest | Minimum/ | Notes |
|---|---|---|---|
Britannia BS | 6.30 | 250/50,000 | Withdrawals lose 180 days' interest |
Coventry BS | 5.50 | 500/250,000 | Rate includes 0.75% bonus for a year |
Newcastle BS | 5.35 | 1/1,000,000 | Fixed rate to 16/11/07 |
Coventry BS | 5.25 | 1/500,000 | Rate includes 0.50% bonus for a year |
As you can see, these four accounts all pay market-beating rates, but they are specialist accounts aimed at homebuyers, senior savers and families with children respectively. Now let's take a look at the some of the top-paying mass-market savings accounts:
Provider/ | Interest | Minimum/ | Notes |
|---|---|---|---|
5.20 | 1/5,000,000 | Rate includes 0.65% bonus for a year | |
Northern Rock | 5.16 | 1+ | Rate includes 0.71% bonus for 6 mths |
5.15 | 1+ | Rate guaranteed to be 0.25% above | |
5.03 | 1/1,000,000 | Rate includes 0.55% bonus for 6 mths |
So, you can earn more than 5% a year before tax on your everyday savings, rainy-day money or emergency fund with a Best Buy savings account. What's more, with the Bank of England's base rate likely to rise this month or in November, things are looking up for savers.
However, if you're very clever, you can beat these rates by keeping some of your spare cash in a table-topping current account. For example, the Alliance & Leicester Premier Direct account pays a whopping 6.1% AER fixed until 31/12/07 on the first £2,500 of your balance (but only 0.1% on any excess over £2,500). Hence, this account pays a handsome £152.50 a year before tax on a balance of £2,500, which you'd be hard pushed to beat. Also, A&L's "Recommend a Friend" deal pays both the new and the existing customer £50 if one A&L customer recruits another, making this account the clear favourite for anyone who can afford to pay £500 a month into a current account!
For customers with balances larger than £2,500, the stand-out winner is the Coventry BS First account, which pays an impressive 5.35% AER on balances up to £250,000. This rate includes a bonus of 0.85% for the first year, and you must pay in at least £1,000 a month. It's high time that I found a new bank account, and I'm convinced that this is the one for me!
More: Use the Fool to find brilliant bank accounts, cracking credit cards and superior savings accounts!