The best savings accounts around now

Decent interest rates are available on savings accounts if you search around, says Ruth Jackson.

At last some good news for Britain's beleaguered savers. Sure, the average branch-based instant-access savings account offers a paltry 0.49% interest rate, but all is not lost if you widen your search a bit.

A simple hunt on, for example, turns up an instant-access postal account with Stroud & Swindon Building Society paying 2.25%, although a minimum deposit of £1,000 is required. If that's too much, the best instant-access account is Chelsea Building Society's Rainy Day Savings Issue 3 account, which offers a 2% Annual Equivalent Rate (AER) with a minimum deposit of just £10.

But these pale compared to regular savings accounts, where the headline interest rate can jump to 6% AER with Barclays. There are drawbacks. You can only save £250 a month with Barclays. And you won't actually get 6%. Interest is credited monthly, so the first £250 will indeed earn 6% over the first year. However, the second £250 will earn 6% for 11 months, the third 6% for ten months and so on. So if you paid in the maximum £250 a month, you would earn an annual rate on the total of more like 3.25%. That's only about half the 6% headline rate, but still a lot better than the rate many accounts are offering. Watch out for a regular saver's catch: you may be penalised for withdrawing money. For example, the monthly interest rate on the Barclays account falls to 3.03% AER in months where you make a withdrawal it's still a good rate though.

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For the top-paying savings accounts you have to be prepared to lock up your money for longer. If you can face not seeing it for five years, the best rate is 4.40% with the Halifax. Tempting, but should inflation make a comeback it may quickly look less appealing. This time last year, for example, the best rate on ICICI's 12-month bond was a 7.2% AER. I'd think twice about locking up your money anywhere for too long at the moment as current headline rates may not remain competitive. You must also be pretty sure you won't need the money back quickly.

So, beyond a regular savings account for fairly small sums, the next best option is a short-term bond, such as ICICI's current 12-month bond, which pays 4%, or a notice account, such as the United National Bank's Three Month Gold Deposit, which is paying 3.53% AER. Both are overseas banks but are signed up to the Financial Services Compensation Scheme, which guarantees your savings are safe up to £50,000. If you still prefer a British bank, the best offer is the AA Internet 12-Month Fixed Rate Bond, operated by Birmingham Midshires, which is offering 3.75% AER.

Finally, if you haven't used your Isa allowance yet this year, do so before you open a standard savings account. There's no point paying tax on interest income if you can help it. Barclays is again leading the pack with its Golden Isa, which is instant access and pays 3.61% AER.

Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.