Recent days have seen even more savings providers slash rates, making it virtually impossible for to earn decent real returns. Bank of Baroda, for example, has just reduced the rate on the latest issue of its
one-year fixed rate bond
AER (annual percentage rate) and closed its two-year bond completely.
But, however tempting it may be to give up on saving altogether, especially in these difficult times, this is the worst thing you can do.
Even though returns may be low, building up a savings pot will provide you with valuable financial protection in the event that you need to get your hands on some money urgently, or if you are unable to work for any reason.
Here, we look at the best homes for any Christmas bonus, or financial presents you might be lucky enough to receive this year...
Best easy access accounts
It's a good idea to try to build up three months' salary in an easy access account, so that if there is an emergency, you can withdraw your money immediately.
Several providers have cut rates on their easy access accounts in recent weeks, but it is still possible to earn interest nearly five times' higher than the current
0.50% Bank of England base rate. However, be aware that most of the top easy access accounts include a short term bonus in the rate, so your returns could plummet after a year unless you move your savings elsewhere.
The current market leading easy access account is
Tesco Bank's Internet Saver account which pays an AER of 2.40% on a minimum investment of £1. This rate includes a fixed bonus of 1.15% for the first 12 months, so you may want to move your money at the end of this period.
Other competitive easy access accounts include
Issue 8 of the Post Office's Online Saver account, which pays 2.35% AER again on a minimum investment of £1. This rate includes a 0.70% fixed bonus for the first 12 months, so again you may want to move your money at the end of this period.
Nationwide Building Society's
MySave Online Plus account is also worth a look, paying 2.20% AER on a minimum investment of £1,000. However, this account only allows one penalty-free withdrawal a year and so won't suit savers who require regular access to their money. The rate includes a 1.18% bonus for the first 12 months.
Derbyshire Building Society also pays
2.20% AER on its NetSaver Issue 8 account, which again can be opened with a minimum investment of £1,000. This rate includes a 1.20% bonus which is payable until the end of February 2014. Cash ISAs
Cash ISAs are among the few accounts that enable savers to beat inflation, as they offer tax-free returns. If you haven't already used this year's cash ISA allowance, then you should do so as soon as possible, as you will lose it for good once the new tax year starts on April 6, 2013.
You can invest up to
£5,640 into a cash ISA this tax year, and the same amount into stocks and shares, or you can invest the full £11,280 allowance into stocks and shares.
Coventry Building Society's 60-day Notice ISA is currently the market-leading variable rate ISA, paying a generous 3.25% tax-free on a minimum investment of £1. This rate includes a bonus of 0.50% for the first 12 months, and the account does not accept transfers from existing ISAs.
Cheshire Building Society's Direct ISA 4 account, meanwhile, pays 3.00% tax-free on a minimum investment of £1,000, although the rate includes a hefty 2.00% bonus which is payable until the end of January 2014, so you will need to move your money once this goes, or the rate will drop to just 1.00%. This account also doesn't accept ISA transfers.
Alternative cash ISAs worth considering include
ING Direct's Cash ISA, which pays 2.50% tax-free on a minimum investment of £1.
While this rate does not include a bonus, it is only guaranteed for 12 months, and so may fall after this.
If you are happy to tie up your money for a while, you may want to think about a fixed rate ISA. Santander, for example, is paying
2.30% tax-free on a minimum investment of £500 held in its 1 Year Fixed Rate ISA, and this account accepts transfers in. You cannot make any additional deposits or withdrawals once the account is open. Fixed rate bonds
Some of the best savings returns go to those who can afford to leave their money untouched for several years. For example,
Triodos Bank's Three Year Ethical Savings Bond pays 3.25% AER on a minimum investment of £500, while its Five Year bond pays 3.50% AER. You cannot make any withdrawals or close this account early, so you must be certain that you won't need to get your hands on your money during the fixed rate term.
Close Brothers Savings 3 Year Select Gold account pays an even more generous 3.30% AER over three years, but you need a hefty £10,000 minimum investment to open this account.
If you don't want to tie your money up for as long as three years, then the
Baroda MAX 1-Year Fixed Rate Bond pays 2.70% AER on a minimum investment of £500. This deal is exclusive to MoneySupermarket customers. Regular savings
If you'd rather pay a small amount into a savings account each month rather than deposit a lump sum, a regular savings account could be the ideal choice for you.
West Bromwich Building Society's
Fixed Rate Regular Saver account, for example, pays 4.10% AER on a minimum monthly investment of between £10 and £250. You can miss up to two monthly payments, but no withdrawals are permitted during the fixed term.
Monthly Savings account, meanwhile, pays 3.25% AER on monthly payments between £20 and £250, but you earn a lower rate of 3.30% for months when you make a withdrawal.
However, the best regular savings rate currently available is from First Direct. If you are a
First Direct 1st Account customer, then you can earn a whopping 8% AER from the bank's Regular Saver accounts. You must pay in between £25 and £300 a month into this account.
Whichever account you choose, remember that saving is vital, even when returns are low, so don't give up the savings habit.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
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