Get the best rate on your savings

Savings rates are finally rising! Here's the lowdown on the top two market-leaders launched just this month...

Savings is a really hot topic at the moment. After months of stagnant waters, rates are on the rise, excitement is growing, and savings accounts have started to entice us again.

Just this month, two new market-leading easy access accounts hit the market, setting the bar for everyone else. But with rates of more than six times the base rate now on offer, who is winning the savings race?

And the winner is

First, let's look at the Alliance and Leicester Online Saver Issue 5 account.

Now, I've reviewed savings accounts from Alliance and Leicester in the past, and to be honest, they've all looked a bit pants.

This is because the majority of its accounts have been littered with catches. And when you're looking for an easy access home for your cash, the last thing you need is a load of withdrawal restrictions, penalties, and rates which lag behind as soon as you open the account.

But after going through this latest offering with a fine-toothed savings comb, I have to admit - this account ain't half bad.

The lowdown on the Alliance & Leicester

Firstly, the rate of 3.15% is the juiciest rate you will find in today's instant access market.

There are better rates available, but you'll either have to lock your money away in a fixed rate bond (usually for a ridiculous term), or open a specialist savings account tailored towards a special goal (like saving for your first home) in order to get them.

What's more:

• You don't need to be an Alliance and Leicester customer to open an account, and existing Alliance & Leicester savers can also benefit from the market leading rate.
• You can access your money whenever you like, without penalty
• There are no withdrawal bonuses, and you can open an account with as little as £1.
• You can apply online and it only takes a few minutes to do so.

There are a few catches, however:

• You can only access the account online
• The interest is paid annually - so you cannot benefit from the miracle of compound interest every month. (Although, you do benefit from it every year. And if you close the account before the year is up, your interest will be paid to you immediately, pro-rata.)

Luckily, as providers continue to jostle for position in the best buy tables, Alliance and Leicester is not the only bank at the top of the savings tree.

Bag a bonus with Birmingham

Alliance & Leicester currently shares the best buy crown with the Birmingham Midshires Telephone Extra account, which also pays 3.15% on balances from £1.

Again, you don't need to be an existing customer to open one, and can make unlimited withdrawals from the account without penalty. However, you can only operate the account by telephone.

As someone who is used to operating my accounts with a few clicks of a mouse, I begrudge having to call an 0845 number every time I want to make a withdrawal (although you may be able to find an alternative number via saynoto0870.com).

However, if you don't trust moving your money online, (the Alliance & Leicester account can only be operated online), it's an option worth considering.

The Birmingham Midshires account does have one other advantage. Unlike with Alliance & Leicester, you can choose monthly interest.

This means if you have a lump sum and like to take a monthly income from your savings, it may be a better option.

Beware of the bonuses

On the downside, both these accounts come attached with with fairly hefty bonuses.

The Alliance and Leicester bonus ranges from 1.65% to 2.65%, depending on your balance and lasts until 2nd August 2010, while The Telephone Extra account comes with a 2.65% bonus for twelve months.

In fairness to both, there aren't many savings accounts free from bonuses these days, and a quick look at the Moneyfacts best buy tables shows that eight out of the top ten savings accounts (starting from £1) include a bonus.

Personally, I don't think bonuses are a bad thing, and a while back I even argued they provide you with savings security.

Just be aware that, once the year is up, that substantial bonus you were getting will disappear, and you'll be left with a highly uncompetitive interest rate.

It's also worth nothing that while the Birmingham Midshires bonus is fixed - so, effectively, the rate on this account is guaranteed not to drop below 2.65% for the next year - the Alliance & Leicester bonus is variable, so it can be reduced at any time. Read Beware of bonus rates on your savings! for more information about this.

At the end of the day, with both accounts, you need to make sure you keep your eye on the ball, and put a date in your diary so you can switch to a better account when the time comes.

Maintaining a good rate

If the thought of bonuses and dropping rates puts you off opening a new savings account, the Investec High 5 savings account provides an innovative way for you to keep on top of changing savings rates.

Instead of setting its own rate, the account pays the average of the five highest savings rates according to Moneyfacts.

This changes on a weekly basis, and currently stands at 3.2%. What's more, there isn't a bonus rate in sight.

I have watched the Investec rate grow from 3.03% to 3.10% and then to 3.2% in recent weeks. If these trends continue, as an Investec saver, you'll benefit from even more rises.

The downside is you have to be quite well-off in order to take advantage of the deal, and need at least £25,000 to open an account. You also won't be able to access your money unless you give three months notice.

Finally, if you do have a large amount to save, Investec is covered by the Financial Services Compensation scheme. So if you choose them, you can rest assured that up to £50,000 of your money is safe.

More: July's top seven savings account | Beware of bonus rates on your savings | Build up an emergency savings pot