10 top ways to get the best return on your cash

Savings rates have stayed stubbornly low all year. Find out the secret to better returns here.

I'm sure all you savers out there are totally underwhelmed by the rates paid on cash right now. You could, of course, take a hugely speculative punt on an exotic investment and hope it reaps you far more generous returns. But most of us are a little less reckless.

If this sounds like you, fear not because there are still plenty of ways you can make your money work harder (and they won't keep you awake at night!)

1.Trim tax

Tax of 20% is automatically deducted from any interest earned on savings accounts. But if you're a non-taxpayer there's one very easy way of boosting your return: ask to have your interest paid gross. All you need to do is complete form R85 - you can pick one up from the bank or building society.

If you have a spouse in a lower tax bracket than you, consider holdings savings in their name to pay less tax by using up their tax-free personal allowance first (currently £6,475 for those under 65).

2. Fantastic fixes

You can enjoy higher returns by locking your money up in a fixed rate bond. I recommend you don't tie your savings up over the longer-term because I think iinterest rates will likely remain low in the short-term so there's a good chance today's fixed rates will stay competitive.

If you choose a one-year bond, you can earn 3.1% with the ICICI HiSAVE Fixed Rate Account. Meanwhile, the two-year version of the ICICI Bond pays 3.7%. If you prefer a long-term option, ICICI pays a rate of 4.75% over five years. (All ICICI Bonds require a minimum investment of £1,000.)

3. Rewarding regular savers

Those who want to stash the cash every month should take a look at regular saver accounts where you can earn a better fixed rate for a limited period. On the downside, you'll normally face a penalty if you don't top-up every month, you probably won't have access and there'll be a cap on how much you can save.

If you bank with HSBC and have a Premier Advance, Passport or Graduate Advance Account, you can earn a whopping 8% fixed for a year with the HSBC Regular Saver on savings of £25 to £250 per month.

Meanwhile, First Direct 1st Account holders can enjoy a rate of 5% with the Regular Saver account. Again you can save between £25 and £250 a month. Exactly, the same deal is on offer at Norwich & Peterborough for Gold Current Account customers.

If you don't happen to hold a current account at any of these banks, fear not because you can still earn 4% at a host of other places including Santander and Principality Building Society.

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4. Beware of bonuses

Many of the top easy access savings accounts include a bonus. In fact, the market-leader the AA Internet Extra account pays 2.80% including a fixed bonus of 2.30%. Likewise, the Santander eSaver account pays a rate of 2.75% including a 2.25% variable bonus, while the Birmingham Midshires Telephone Extra Account also pays 2.75% including a fixed bonus of 2.25%. All bonuses last for a year.

Once the bonus has disappeared you may be left with an uncompetitive rate, so don't leave your savings to languish. But that said, an account which pays a fixed bonus which does give savers a guarantee that they will earn a minimum return over the next 12 months.

5. Ditching and switching

If nothing you've read so far has impressed you, try ditching ordinary savings account in favour of switching to a high interest current account.

The best one is the Santander Preferred In-credit Rate Account which pays a fantastic fixed rate of 5% on balances of up to £2,500. But rates this good only last a year and the returns earned on balances over £2,500 are rubbish, quite frankly. To qualify for this deal you'll have to switch your direct debits over to Santander and pay in at least £1,000 a month, but on top of that you'll earn £100 cashback to boot.

If you don't actually want to switch your current account and you have a halthy amount of spare cash, consider the Lloyds TSB Classic with Vantage account which pays 4% on balances of £4,000 to £7,000. Again you'll need to pay in £1,000 a month.

6. Take your savings tax-free

Cash ISAs are a great way of getting more for your money with a tax-free return. You can save up to £5,100 every tax year.

It's true the top ISAs pay even lower headline returns than the best-buy taxable savings accounts at the moment. But given that the rate is tax-free you will be a little better off. On top of that, by stocking up your ISAs now, you'll have more of your money in a tax-free home ready for when rates recover.

7. Be brave with corporate bonds

You could take advantage of higher yields by putting some money in a corporate bond fund. A corporate bond is like a loan to a company which pays a fixed rate of interest to the investor. Bond fund managers trade bonds with the aim of maximising your returns.

The top performing fund over the last year - the Henderson Sterling Bond fund - has a current gross yield of 5.00%*. While the star performer over three and five years - the M&G Strategic Corporate Bond fund - is providing 4.18%.* Thie highest yielding fund at the moment is Rathbone Ethical Bond which is currently paying 7.20% (but note it has not posted the stongest returns for capital growth).

Remember your capital is not guaranteed. If a company goes into default, where it's unable to pay interest to bondholders, performance will suffer. How well the fund does depends on the manager's ability to pick the right bonds.

*Yields provided by Trustnet as at 13.08.10.

8. Think Zopa

Zopa is an online business that allows you to earn good returns by lending money to other people - keeping the banks totally out of the loop. You set the rate you want to earn on the money you lend out.

The average return over the last year was an impressive 8.3% (after fees but before bad debt). Your money will be repaid monthly. You can withdraw it as it comes back to you, but there's no access to your cash while it is held with borrowers.

Your money will be divided across a number of borrowers to spread the risk, but there's always a small chance someone will default. To find out more go to zopa.com.

9. Keep track

No matter where you put your savings in the end, always shop around for the best rates first. Then keep track of whether the account stays competitive. You can do this quite easily by comparing rates at the lovemoney.com savings centre.

10. Finally, set yourself a target

Forget about rates and returns for second. If you have a budget and a target, your savings will grow more quickly. If you need a bit of a kick to get you into the savings habit you've come to the right place - watch this video: How to save when you've got no money.

Compare savings accounts lovemoney.com

This is a lovemoney.com classic article which has been updated for 2010.

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