ICICI Bank, for example, increased the rate on its three-year fixed rate HiSave account to
4.70%. Along with
Barnsley Building Society's Online Bond, also paying
4.70%, this is the leading rate among the three-year deals.
Fixed rate accounts continue to pay the highest returns. However, they won't suit everyone because they are inflexible. Neither ICICI nor Barnsley allow withdrawals or early closure, so your money is tied up for three years (and in the case of Barnsley slightly longer as its bond matures on 28 February 2013).
Fixed rate bonds are also designed for those with a sum of money to invest as opposed to someone looking to save on a regular or ad hoc basis. Many only allow a single deposit to be made at the time the account is opened.
Others will permit additional investments while the product is still available to new customers, but because of the nature of fixed rate bonds and way that they're priced, they tend to come and go quite quickly - so don't bank on having the opportunity to pay more money in at a later date.
If you can't afford to lock your money away, a variable rate deal is probably a better option. You will have to accept a lower rate, but the leading rates are still highly competitive and are paying significantly more than the 0.50% base rate, so in return for the extra flexibility, you can still get a very good deal.
The cream of the crop
Here's a rundown of the five highest-paying accounts to help you decide which deal to go for:
Citibank Flexible Saver Issue 6: This account has recently been launched and is paying a market-leading 3.30% (it replaced Issue 5 which had a rate of 3.15%). The gross rate is slightly lower, at 3.25%, but interest is paid monthly so the effect of compounding means you'll earn 3.30% over 12 months - this is referred to as the annual equivalent rate (AER).
As well as being the most competitive easy access rate, the minimum balance is just £1, so you don't need to deposit a large amount on opening or worry if you dip into your savings over the course of the year. Additional deposits can be made at any time and there are no penalties if you make a withdrawal.
However, it's important to note that the headline rate includes a 12-month fixed rate bonus of 2.25%, so the gross rate will then drop to Citi's standard rate which is currently just 1.00% - at that point you should see what other savings accounts are available as you'll probably be better off moving your money elsewhere.
The other key point about this account is that it is only available to new customers, so if you already have a savings account with Citi, you won't qualify. Overall though, this is a very competitive and flexible deal.
Bradford & Bingley Notice Saver Online: Another new account, also paying a highly competitive AER of
3.30%. However, this deal isn't as flexible as the Citibank Flexible Saver, so before signing up make sure you're fully aware of the terms and conditions.
Rather than being an easy access account, this is a notice account so, although withdrawals are permitted, you must give 60 days' notice before you can take money out.
Other key points to note are that you must pay in at least £1,000 when the account is opened and the rate includes a 12-month bonus. The bonus is 2.80% and it is variable so theoretically it may be altered during the first year, although Santander, which owns B&B, said it has never reduced a bonus part way through the term.
Once the bonus period ends, the rate drops to 0.50%, so be prepared to move your money elsewhere at that point (remembering that you'll need to give 60 days' notice to do so).
If you have a large amount of cash savings it's also worth bearing in mind that B&B shares the same banking license as Abbey, so under the terms of the Financial Services Compensation Scheme, even if you have savings accounts with both brands, only £50,000 is totally protected (£100,000 if the accounts are in joint names).
ING Direct Savings Account: Rather than including an introductory bonus, this account guarantees to pay an AER of
3.20% for the first 12 months. Thereafter, it drops to ING's standard rate which us currently
0.50%.
This is another highly competitive and highly flexible account - the minimum deposit is just £1 and you can make penalty-free withdrawals at any time. Also, unlike Citibank's account, existing customers may also be eligible - ING allows you to have up to 10 accounts.
ING is not signed up to the UK's compensation scheme, instead you are protected by the Dutch scheme under which up to €100,000 is totally guaranteed (about £90,000).
Alliance & Leicester Online Saver Issue 5: Interest on this account is paid annually, so the AER on the gross rate are both
3.15%. This includes a 12-month variable bonus, although the rate you will earn once the bonus period ends depends on how much you have in the account.
The minimum deposit is £1,000 and the rate for those with between £1,000 and £24,999 in their account is 0.50% after the first year. Balances between £25,000 and £249,999 will earn a rate of 0.75%, while the rate for balances between £250,000 and £2million (the maximum you can invest) is 1.50%. However, remember that only £50,000 is guaranteed by the FSCS, so the advice is not to have more than this invested with any one institution.
A&L is part of the Santander group but, unlike B&B which shares a banking license with Abbey, it has its own registration. You can therefore invest £50,000 in an A&L account and have a further £50,000 in an Abbey or B&B account, and the entire amount will be protected in the even of Santander going bust.
Birmingham Midshires Telephone Extra: This account also has an AER of
3.15%, interest can be paid annually or monthly and the gross rate is slightly lower at
3.11% for the monthly option. This includes a 12-month bonus of
2.65% so the rate will then drop to
0.50% AER
0.46% Gross - and it will be time to move your money again.
As its name suggests, this account is operated by phone, although Birmingham Midshires has recently changed the proposition slightly as you can apply online or over the phone. The ongoing management of the account however, is still done via the phone.
Birmingham Midshires is part of the HBOS banking license. This is something to bear in mind if you already have savings with Halifax, Bank of Scotland, Intelligent Finance, The AA or Saga, as you will only have £50,000 total protection.
Spread your money around
For more information on how to keep all your savings safe and to find out what level of protection you have with different savings brands, read our article 'Who owns who?'.
For more information on the latest savings deals visit our savings channel.
Please note: 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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