According to research by MoneySupermarket, the average rate on the top five easy access accounts has increased by
0.23% over the past year to
2.97%, while the average top five bonus rates are also up by
0.5% compared to the same time last year. Similarly, the average rate on one year fixed rate individual savings accounts (ISAs) was
2.99% in 2011, but is currently
3.17%.
Savings rates are likely to remain competitive for the foreseeable future because of the on-going Euro crisis. As wholesale funding gets more expensive, banks and building societies will have to increasingly rely on inflows from retail savers. That means they will need to continue to tempt us with generous rates.
Kevin Mountford, head of banking at MoneySupermarket, said: "Savers have suffered from a low base rate environment for almost three years, so it's encouraging to see banks and building societies increasing competition to attract savers.
"However, with the majority of savers sitting on low rate accounts, I would urge consumers to take advantage of this renewed competition and shop around to ensure they have the best savings deal for their needs. Even if you cannot afford to lock away your savings, the top-paying easy access accounts are still returning over six times that of the Bank of England base rate."
Here, we take a look at some of the accounts that can help bring savers out of the doldrums this January...
Easy access accounts
Several easy access accounts pay interest at 3% or higher. For savers with large sums to invest, West Bromwich Building Society has just launched a new market-leading account, the Direct Bonus Account 3, paying a massive 3.13% annual interest before tax to those with at least £10,000 to invest. Savers with smaller balances will earn a less exciting 1.75% a year.
These rates include a 1.38% bonus until February 28 next year, so you may want to move your money when this disappears. Only four withdrawals are allowed from this account in any one year. If you make any more than this, you will be charged 90 days' interest on the amount withdrawn.
If you don't have such a large sum to invest, then ING Direct's Savings account pays 3.10% annual interest before tax on a minimum investment of £1. This rate includes a hefty 2.56% bonus for the first 12 months, so you will need to move your money once this period finishes.
Alternatively, Santander's eSaver Issue 4 account also pays 3.10% before tax on a minimum investment of £1, although this rate includes a steep 2.60% bonus for the first 12 months. Both these accounts allow unlimited withdrawals.
Fix for the highest returns
Fixed rate bonds tend to pay the highest rates of interest, but require you to tie up your savings for a fixed period of time.
As a general rule, the longer you are prepared to lock up your cash, the more interest you will earn. However, if you go for an account with a five-year term, for example, bear in mind that when interest rates do start to rise, the rate you've locked might not seem quite as attractive.
That said, if you believe rates are going to stay very low for some time to come, you may consider it worthwhile looking at longer-term options.
BM Savings, for example, is paying a competitive 4.65% annual interest before tax on its five-year Fixed Rate Bond, which can be opened with a minimum investment of just £1. Alternatively, the AA pays 4.60% on its five-year Fixed Rate Savings account, which again can be opened with £1.
The market-leading bond over four years is Halifax's 4 Year Fixed Online Saver account, which pays 4.30% on a minimum deposit of £500. No withdrawals are allowed, but you can close the account early if necessary, although you will lose 320 days' interest.
For those who prefer shorter term accounts, the good news is that the average top five rates for one-year and two-year fixed rate bonds, based on £10,000 ,have both increased by 0.46% since the same time last year according to MoneySupermarket research.
BM Savings is currently paying an impressive 4.05% on its two-year Fixed Rate Bond which can be opened with a minimum investment of £1. You should be prepared to tie up your money for the full two years as, if you make a withdrawal in the first year of the fixed term period, you will lose 180 days' interest on the amount withdrawn. If you take money out in the second year, you will lose 90 days' interest on the amount withdrawn.
And specialist savings bank Shawcross is offering savers who want to tie up their money for 18 months 3.90% interest before tax a minimum investment of £5,000 and a maximum of £500,000.
Alternatively, Vanquis Bank is paying 3.35% on its one-year Fixed Rate Bond, which can be opened with £1,000, or for smaller savers, Northern Rock's E-Bond pays 3.00% on £1.
Use tax-free allowances
If you haven't yet used your individual savings account (ISA) allowance this tax year, then make sure you act before the end of the tax year on April 5, or you will lose it forever. You can invest up to £5,340 into a cash ISA tax-free and the same amount into stocks and shares, or you can invest the full £10,680 allowance into stocks and shares alone.
If you don't want to take any risks with your savings, then you can earn up to 3.10% tax-free and get instant access to your money with Nationwide's Online ISA. However this rate (which includes a 12-month 2.10% bonus) is only available to those with at least £25,000 or more to invest. Savers who pay in the minimum £1,000 permitted to open this account earn a much lower rate of 2.75%.
If you haven't got £25,000 to invest, then you may want to consider the West Bromwich WeBSave ISA 4 account, which is exclusive to MoneySupermarket and pays 3.07% annual interest tax-free, including a 1.07% bonus until the end of February. The account requires a minimum deposit of £1,000 on account opening. The maximum amount that can be paid into the account this tax year is the cash ISA limit of £5,340, although like the Nationwide account, this account also accepts transfers from existing ISAs.
If you can afford to leave your money untouched for a while, there's also lots of tempting fixed rate ISAs available. Bank of Ireland's market-leading five-year fixed rate ISA, for example, pays 4.50% annual interest tax-free on a minimum investment of £100, while the same bank's 18-month fixed rate ISA pays a generous 3.50% tax-free on the same amount.
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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