There's something of a war going on in the savings market at the moment - banks and building societies are desperate to attract our cash and as a result the best savings rates are paying way more than the 0.5% base rate. You can earn
4.5% if you're happy to lock your money away for two years and even if you want to retain access to your cash, you can get
3.15%. Yet too many of us have yet to take advantage of this and moneysupermarket.com has calculated that collectively it's costing us
£7.7billion a year in lost interest. That's an average of
£200 per saver.
If, like millions of other people, you don't know what you're currently earning on your savings, your challenge for this week is to ring your bank or building society and find out what rate of interest you're currently being paid.
The base rate plummeted from 5% to 0.5% between October 2008 and March this year. As a consequence, many savings accounts are barely paying anything. So it's time to take action and move your money to a place where you, not the bank or building society, will benefit.
The best for money that can be locked away
If you've got savings you won't need to access for a year or two, consider a fixed-rate bond as these are paying the highest rates of return at the moment.
You can earn 5.10% with Barnsley Building Society, but to get that rate you must lock your money away for five years. With base rate at an historic low, that's a bit of a gamble because interest rates will have to start rising again at some point and the risk is, you'll find yourself trapped in a deal that becomes uncompetitive. Barnsley doesn't allow you to withdraw money from this account during the fixed term.
A shorter-term deal may therefore be a better option. Newcastle Building Society has launched a new Postal Bond, which is fixed at 4.50%, while ICICI Bank's two-year Fixed Rate HiSave account is paying 4.35%.
What about easy access accounts?
You may not have money you can afford to lock away, in which case an easy access account will be a better option (and depending on how much you've got in savings a mixture of fixed and easy access could be the best way to maximise your return).
Alliance & Leicester's Online Saver Issue 5 and Birmingham Midshire's Telephone Extra account are both paying 3.15%. The rates include a bonus - A&L's lasts until August 2 2010, while the introductory rate on the Birmingham Midshires account is a 12-month offer. You should look to move your money again once the bonus period ends.
Other options if you're looking for an easy access account include ING Direct's Savings Account and the Coventry Building Society Poppy account, both of which have a rate of 3.0%; Principality Building Society's e-SAVER issue 2 and Intelligent Finance's (IF) iSaver at 2.85%; and Sainsbury's Bank's Internet Saver and Egg's Savings Account both of which are paying 2.80%. There are bonuses and withdrawal restrictions on some of these deals to be aware of - for more details on what these are read our article 'Leading savings deals unpicked '.
Don't forget cash ISAs
If you've got money in a cash ISA, check what interest rate it's paying too. If it's poor, move your money to a better deal.
You can switch to a more competitive deal without losing the tax-free status on your money - you just need to make sure that you do an ISA transfer. Don't close your existing account and withdraw the money as you will lose the tax break if you do this. Instead, tell your new ISA provider that you have funds you want to move over from another account (this will be part of the application form) and it will arrange the transfer for you.
Not all cash ISA deals accept transfers so this is something else to watch out for. Halifax's two-year Fixed Rate ISA Saver pays 3.50% and transfers in are permitted. If you'd prefer a variable rate option, IF's Cash ISA has a rate of 2.75%. Again, transfers in are allowed.
Safe savings
As well as moving your money to get the best rate of interest, you should also take this opportunity to ensure it's all totally protected.
If you currently have more than £50,000 invested in one account, or the same institution, look to spread it between different providers. Under the terms of the Financial Services Compensation Scheme, only the first £50,000 (£100,000 for joint accounts) held with a single institution is totally guaranteed.
It's also worth noting that some savings brands, such as Halifax, Bank of Scotland, Birmingham Midshires, IF and Saga, share the same banking license, so even if you had an account with Birmingham Midshires and one with IF, only £50,000 would be guaranteed. However, if you had a Birmingham Midshires account and an A&L account, £100,000 would be totally protected.
For more information read Clare Francis' article 'Who owns who?'.
You can find out about more savings rates by visiting our savings channel.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing. Products underlined can be applied for directly.
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