For 20 minutes of effort you could earn £100 from your savings.
Nowhere do we throw away more free money than when banking.
Ask someone to fill in a 20-minute questionnaire in return for £100 and they will jump at the chance. But suggest they spend the same time completing an online application for a savings account and they'll constantly put the task off.
Yet for every £3,000 you save, you could earn around £100. And even if you have no savings yet, there are ways to start benefiting immediately. I'm going to write about the top accounts around for emergencies, holidays, regular savings and longer-term saving.
Basic savings accounts
There are two forms of basic savings account: easy-access savings accounts and easy-access cash ISAs. Everyone should have one or the other for emergency savings as well as for savings you will need inside 12 months, e.g. for Christmas or holidays.
These accounts let you transfer money to your current account in three days, or even instantly sometimes. You can pay in or withdraw money as often as you want (usually), and can open an account with just £1.
Cash ISAs are exactly the same as savings accounts, except they are tax-free and each individual is allowed to put no more than £5,340 into one. You can open one per year, meaning you could have two cash ISAs by next year, three the following year, and so on.
Top easy-access savings accounts and cash ISAs
|
Name |
Rate (AER) | after basic | after higher-rate tax |
Min amount |
Guarantees |
|
3.11% | 2.5% | 1.9% |
£1 |
Pays at least 2.11% until 30 November 2012 |
|
|
3.1% | 2.5% | 1.85% |
£1 |
Pays at least 2.56% for 12 months |
|
|
3.05% | 2.45% | 1.85% |
£100 |
Pays at least the base rate plus 2.55% for 12 months |
|
|
3.05% |
£500 |
Pays at least 1.35% for 12 months |
|
|
3% |
£1 |
Pays at least 1.96% for 12 months |
Excluding accounts with onerous conditions, such as limited withdrawals, or accounts available to existing customers only. Online accounts only.
I've chosen the best in this list based primarily on interest rate, but also taking into account such things as guarantees or special terms.
Regular savings
If you want to invest regularly each month from your income rather than a lump sum, you can still use the accounts above. Sometimes a better option, though, is regular savings accounts. These can pay higher interest rates, but they're not usually available as tax-free accounts (ISAs) and your money is locked in, typically for 12 months from the first monthly payment.
Here are the best I can find:
Top regular savers
|
Name |
Rate (AER) |
Monthly amount |
|
Norwich & Peterborough BS e-Regular Saver |
4% | 3.2% | 2.4% |
£1 to £250 for 12 months |
|
Barclays Monthly Saver |
3.25% | 2.6% | 1.95% |
£20 to £250 for 12 months |
Online accounts only. Accounts for existing customers only are excluded.
As you can see, we currently have little choice, but both these accounts offer unusually flexible terms for regular savers.
[SPOTLIGHT]The N&P e-Regular Saver allows you to vary your deposits each month. You can even make one penalty-free withdrawal in the year. However, be sure you always deposit at least £1 or you will be penalised. Also check out N&P's e-Family regular saver, which pays 5% to families with children.
Barclays' Monthly Saver also allows you to vary your deposits and you can even make withdrawals with just a very small loss of interest in the month of the withdrawal.
Long-term accounts
For any excess cash you have above your emergency pot and beyond your spending needs inside the next 12 months, consider long-term accounts, which tie up your savings for one to five years.
For these accounts to be worthwhile, they need to pay you more than you can get in an easy-access account. The longer your money is tied up, the higher the interest rate it should pay. These are also available in the tax-free form of ISAs.
Top long-term savings accounts
|
Name |
Rate (AER) |
Length |
Minimum amount |
|
RPI + 0.5% |
Five years |
£100 |
|
|
4.6% | 3.7% | 2.75% |
Five years |
£1,000 |
|
|
4.5% |
Five years |
£2,000 |
|
|
4.3% |
Four years |
£500 |
|
|
4.25% | 3.4% | 2.55% |
Four years |
£1,000 |
|
|
4.21% | 3.35% | 2.55% |
Three years |
£500 |
|
|
4% |
Three years |
£500 |
|
|
4% | 3.2% | 2.4% |
Two years |
£500 |
|
|
3.96% | 3.15% | 2.4% |
Two years |
£500 |
|
|
3.75% |
Two years |
£500 |
|
|
3.6% | 2.9% | 2.15% |
One year |
£100 |
|
|
3.52% | 2.8% | 2.1% |
One year |
£1,000 |
|
|
3.2% |
One year |
£1 |
Online accounts only.
All these rates are fixed apart from the National Savings and Investment (NS&I) bonds, which tracks the Retail Prices Index (RPI) of inflation plus 0.5% extra per year. In the past year, customers earned 5.5% AER.
The longest fix of 4.6% doesn't seem like a lot extra to me compared to easy-access accounts or shorter fixes, considering you're giving up your rights to shop around again for a full five years.
I certainly don't see why many people would choose to tie up their money for four years in the Aldermore account paying 4.25% when you could get practically the same through the Post Office while tying up your money for three years only.
The Leeds Building Society bond allows up to 25% withdrawals without penalty, provided you maintain at least £100, but it has a low maximum of £5,000 (£10,000 for couples).
Tips on choosing accounts
My goal with savings is to keep up with inflation rather than trying to earn the most interest possible, because to do the latter means making forecasts about where interest rates will move in future, and that often leads to disappointment. After all, if you tie your money up for four years at 4% interest, how do you know that in two years easy-access rates won't reach 6%?
If your goal is the same as mine, I recommend a combination of easy-access accounts for a substantial emergency savings pot and for savings you'll need inside five years, or possibly a one-year fixed account for savings you won't need for a year, but can't afford to be without in the longer term.
For the excess – which you won't need until after five years – National Savings and Investments is the king, since it offers the only account on the market that guarantees that all account holders will completely protect their money from inflation under all circumstances– and you even get a little bit extra on top.
If you don't use this year's ISA allowance, you lose it forever. Take advantage of these tax-free accounts when you can.
One more thing to remember: when savings deals come to an end, you're almost always shifted to a very uncompetitive deal. Make a note in your calendars to switch again.
I have not filtered the above accounts based on how safe your money is with those institutions, because that is difficult to measure with the limited information they give customers and shareholders. As a general rule, NS&I should be safest and the building societies mentioned are probably, on average, safer than the banks, but don't quote me on that.
To protect yourself from bank (or building society) failures, if you have substantial savings you should spread them across different institutions that aren't part of the same banking group. In particular, ensure that you have less than about £80,000 (£160,000 for couples) in one group. Any more and you won't be protected by government guarantees.
If you have very substantial savings, consider investing some of it rather than merely saving.
More: compare savings accounts through lovemoney.com | Ten things you should never pay full price for | Switch now and slash your mortgage payments