We look at the best savings accounts for Fools who can only afford to put down very small initial deposits.
This article was first sent to Fools as part of our 'The Good, The Bad and The Ugly' email series.
Last week, I came across a press release that made me look twice. Cahoot, the internet division of Abbey, is now offering an instant access savings account, with no penalties for withdrawal, which has a market-leading interest rate of 6.55% AER.
Now, this seemed like a pretty good deal, and I was contemplating setting up an account myself - until I spotted the catch. How much did you need in the account to get this high rate? A million pounds. Yup, that's right. One million!
In fact, if you've got anything less than £50,000 in a cahoot standard savings account, you can expect a lower interest rate of 5% AER -- grrr.
If you're just starting out
Here at The Fool, we'd encourage you to start saving if you possibly can, particularly in the current dodgy economic climate.
But if you've only just got back into the black, you're hardly likely to have a million pounds floating about to start a savings account -- or a thousand for that matter.
So here, I'm going to look at savings accounts you can open with an initial minimum deposit of £10 or less. Within that group, I'll highlight the ones that give the best interest rates around.
Easy access
If you think you might need quick and easy access to your savings, here are three accounts that pay decent interest rates.
Bank/ | Account | % AER | Fixed/ | Minimum deposit | How | Notice/ |
|---|---|---|---|---|---|---|
Birmingham Midshires | e-Saver | 6.50% | Variable | £1 | Anniversary | None |
Alliance & Leicester | 6.50% | Variable | £1 | Monthly | None | |
SAGA* | 6.43% | Variable | £1 | Monthly | None |
* Customers must be at least 50 years of age.
These accounts allow you to make withdrawals at any time -- so if you think you might need funds in an emergency, they could be the right choice for you.
The downside is that if you're not disciplined enough, you could end up frittering away the money you save on various non-essential bits and bobs!
Another thing to bear in mind is that all these accounts have variable interest rates. This means that, in theory, the lenders can change the interest rates whenever they want -- so you might have to shop around to find another good account in the weeks or months to come.
In it for the long haul
If, on the other hand, you're confident you won't need to access your savings any time soon, you can find much higher rates of interest -- and they're fixed, so you don't need to worry about them dropping next week!
Bank/ | Account | % AER | Fixed/ | Minimum deposit | How interest is paid | Notice/ |
|---|---|---|---|---|---|---|
Alliance & Leicester | Save & Protect | 15.00% | Regular Savings Rate | £10 | On Maturity | 1 year bond |
Alliance & Leicester | Premier Regular Saver | 12.00% | Regular Savings Rate | £10 | On Maturity | 1 year bond |
As you can see, A & L's Save & Protect account offers a whopping 15% interest AER. Unfortunately, it's only suitable for a relatively small number of people, because in order to get that high rate, you need to have a certain A & L current account and also take out very specific protection products.
A& L's Premier Regular Saver account is slightly less niche (and still offers a very tasty 12% rate) but again, it won't suit everyone. You also need to be a new Premier Current Account customer with them.
So - what if you want a high-interest savings account, with an initial deposit of £10 or less, but without these sort of catches?
Take a look at the Birmingham Midshires Direct Internet Fixed Rate Bond (1year) which I think gives customers a pretty good deal. It offers interest of 6.88% AER, fixed, with a minimum deposit of just £1.
And you don't need to have any other products with Birmingham Midshires to take advantage of this account.
Happy saving!
Visit The Fool's Savings Centre to help find the account that suits you best.