Statistics from the Post Office show that collectively savers in the UK are pouring away £8bn a year as they leave their hard-earned cash in accounts paying interest well below the 5% Bank rate.
Around two thirds of UK savings accounts pay 3% or less in interest but there are a host of deals offering more than double this amount. Banks have turned to retail savers to plug the gap caused by the liquidity shortage on the wholesale markets which has left institutions struggling to raise cash for loans and mortgages. So even though interest rates have been left on hold again this month we are still seeing savings rates rise. To attract our business, banks and building societies are offering some stunning deals, with the leading accounts paying interest in excess of 7%.
It's time for savers to move away from poor-paying accounts and find a high interest deal that's right for them. However, it's also important to shop around with savvy and think about the type of saver you are - whether you want to lock your money away, save just a little each month or dip in and out of your savings. Let's take a look at the options available depending on what type of account you need.
I can only afford to save a little each month
If you don't have much money to invest you might assume that saving just isn't worth your while - but nothing could be further from the truth. As long as you make small contributions each month you could enjoy interest rates as high as 12%.
The 12% fixed rate, which lasts for 12 months, is available from the Alliance & Leicester (A&L) Premier Regular Saver for minimum monthly deposits of £10 and maximum monthly investments of £250. There is a catch to this deal however: to qualify you must hold an A&L Premier current account. It's worth considering moving to this deal as it the current account pays 1% on balances up to £2,500 - many of the high-street banks only pay 0.1%.
Generally, the top paying regular savings accounts have catches. Other examples include the Abbey Super Monthly Saver 2, which pays 10% on investments from £25-£300 a month, but you must first start a regular investment into either a pension or protection plan. First Direct offers 8% on its Regular Saver, but this relies on you opening a First Direct 1st account.
However, two new accounts have just been announced without any such catches. Halifax's Regular Saver is paying 10% and as well as a fantastic rate of interest, you can also pay in up to £500 - often, the amount you can pay into a regular savings account is capped at £250. You'll need to act quickly to take advantage of this deal though. It launches on June 9 but is only available for six weeks so you must apply before July 20.
Barclays' offer is also appealing, although the terms are not as generous as those from Halifax. Its new Monthly Savings Account offers 7.75% on investments ranging from £20-£250 a month.
Remember that these deals are fixed and will mature - usually after 12 months - at which point they may revert to instant access savings deals so depending on the rate offered you may wish to shop around again. Also, you cannot normally access your savings during the term, so make sure you only put away money you won't need for at least a year.
I want to be able to dip in and out of my savings
The majority of savers want an easy access account so they can get at their money when they need to, without penalty. The interest rates are not the highest because of this flexibility but unless you are certain you can lock your money away, a slightly lower interest rate is a sacrifice worth making.
The newly launched Birmingham Midshires e-saver Account (issue 2) has gone straight to the top of the easy access best buy tables with a rate of 6.51% available on balances above £1. However, close behind are the A&L esaver, the Abbey Instant Access Saver, the Kaupthing Edge Instant Access Savings Account and the Abbey Esaver Direct all of which offer 6.50%.
Crucially, the Birmingham Midshires deal offers unlimited transactions with no loss of interest - the Kaupthing Edge and Abbey Instant Access Saver deals also carry no withdrawal restrictions. By contrast, the A&L account will not pay any interest during a calendar month when a withdrawal is made, with the exception of July. The Abbey Esaver Direct only pays 2.75% interest during a month in which a withdrawal is made.
Other recent moves have seen Egg increase the rate on its Internet Savings Account from 6.05% to 6.30% - the higher rate of interest will be backdated to all accounts opened since May 8. Also, this rate is fixed for 12-months but you can still access your savings at any time - most fixed rate savings deals do not permit withdrawals during the fixed term.
Coventry building society is offering a similar deal to the over-50s. It has just upped the rate on its 50 Plus eSave 4 account to 6.25% and this is fixed for a year.
Tesco has also just increased the rate on its Internet Saver. It is now paying 6.25% on balances above £1, although this rate includes a 12-month bonus of 1.5 percentage points so the rate will drop to a less impressive 4.75% after the first year. This assumes interest rates don't change however, as this is a variable rate deal.
You can compare easy access account using our savings comparison tool.
I want to lock some money away
As discussed last week in 'act fast and fix your savings', the fixed rate savings market is highly competitive and some deals are proving so popular that they are being withdrawn altogether.
You can still pick up a market-leading rate of 7.10% from FirstSave First Bank of Nigeria. The provider offers a one-year fixed account, a two-year fixed account and a three-year fixed account all with the same market-leading rate so you can make an assessment of how long you're willing to lock your money away for - deposits begin at £1,000.
Icelandic bank Icesave also offers an accessible deal - its Fixed Rate Savings Account is set at 7.01% for deposits of £1,000 or more. The ICICI HiSave Term Deposit offers 7.0% on balances beginning at just £1, but to qualify for this rate you'll have to open an ICICI HiSave Savings Account which has a rate of 6.16% and is guaranteed to be 0.3% above Bank rate until December 31, 2011.
If you prefer to bank with a British provider, Bradford & Bingley is launching one, two and three-year fixed rate bonds paying 7.0% - these will be available from June 9. Alternatively, Anglo Irish Bank has a one-year fixed rate bond at 6.80%.
Fixed rate savings accounts are an excellent way to secure peace of mind that no matter how Bank rate moves you'll always be picking up the same competitive rate. So if you have a sum of money you're certain you won't need to touch for a year or more, capitalise on one of these deals.
No matter what type of saver you are there's no excuse not to capitalise on these incredible rates - so think about how regularly you will require access to your funds and then shop around from more than 4,000 UK savings accounts to find a deal that's right for you.
Have your say: There have been some posts on our forum from people who have had problems opening some savings accounts. Have you recently opened an account without encountering any service issues and would you recommend the provider? If so visit our forum and let others know.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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