The best new short-term savings deals

Robert Powell takes a look at six month savings bonds as well as range of other short-term accounts for your nest-egg...

A lot can happen in six months.

Turn the calendar back to May this year: Amy Winehouse and Jimmy Saville were still alive, the streets of London were a lot less ‘un-rioted’, and you could happily take a stroll around the perimeter of St Paul’s Cathedral without tripping over the tent of a masked anti-capitalist.

Oh, and on something of a less exciting note: if you had taken out a six month savings bond, it would now be maturing.

But is it really worth squirreling your money away for just half a year?

Let’s take a look.

Six month bonds

According to Moneyfacts there are currently 29 six-month savings bonds. But this tally misses out a new account from Newcastle BS, making the overall total 30.

These accounts have an average interest rate of 1.92%. Pretty paltry, I know. But this is dragged down by a number of particularly rubbish deals. In fact, a few of of the accounts pay a fairly competitive 3.02% AER - and here they are:

Banks are aiming these short-term bonds at savers who are worried about both their own and the country’s financial situation. And who can blame them? In a climate of rising prices and squeezed personal budgets, parting from your cash for a long period of time always poses something of a risk.

What’s more, these worries are added to by the threat of an early Base Rate rise upping bond returns, leaving anyone with a long-term account out of pocket.

However six-month bonds certainly aren’t the only option for tentative savers. Instant access accounts are also worth a look.

So how do these six-month deals stack up against their easy access counterparts?

Instant access accounts

The top paying instant access savings account around at the moment is the Nationwide MySave Online Plus with an interest rate of 3.12%. That’s over a tenth of a percent more than the best six month bond. And you get instant access to your cash!

However there is a catch. The deal isn’t 100% instant access, as you’ll only be able to make one penalty-free withdrawal per year.

But – as you can see from the table below – there are still several truly instant access savings accounts that also beat the six-month bonds.

Source: lovemoney.com savings comparison centre 

These accounts really do trounce the six-month deals hands down, with one 3.12% and one 3.10% AER deal.

What’s more, by opting for an easy access deal, you can essentially turn your account into a six-month bond by withdrawing your cash after half a year. However if you are planning to do this, your interest rate may drop slightly from the advertised level.

For example if you choose to receive monthly interest, your actual return each month will be slightly lower than the advertised rate. This is because AER allows for compound interest (interest earned on interest) which boosts the total gross rate over one full year.

So if you did go for a 3.12% AER account and then pulled out most or all of your cash after six months, you’ll probably find your actual return over the half-year period falling to between 3.09% and 3.10%. But then again, this is still better than all of the designated six month bonds.

You should also beware of bonuses on these easy access accounts that will drop off after a year and leave you with a pitiful return.

But there is one further option that offers an even higher return on your nest-egg.

Go tax-free

Cash ISAs are savings accounts that allow you to save up to £5,340 per year tax-free (this limit will increase to £5,640 in the next tax year). The tax-free nature of these accounts allows you to boost the return on your savings by 20% when compared to a regular bond, if you’re a basic rate taxpayer that is.

So here are the three best Cash ISAs that also allow you instant access to your money:

Source: lovemoney.com ISA comparison centre.

ING Direct offers the best instant access Cash ISA rate. However this account does not allow transfers in from other ISAs. This means that if you do go for this deal, your entire deposit will have to be cash from your annual limit.

Stringent savings rules also mean that if you have already stashed cash into an ISA since April, you won’t be able to get hold of this account. This is because you cannot split one year’s ISA allowance across two providers.

One-year deals

Finally, if you do fancy locking your cash away for a little longer, here are the best one year savings bonds and ISAs currently around:

Source: lovemoney.com ISA and savings comparison centres.

Just too short?

Would you take out a six month savings bond? Or is just too short a length of time?

Have your say using the comment box below.

More: Compare ISAs and savings account with lovemoney.com | Save thousands using this new tax-free account | The best new ISAs for Autumn