How to pick the right savings account

Here’s a handy checklist to help you find the highest returns you can on your cash.

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If you’re looking for the best place to squirrel away your savings then you’ll have to do a fair bit of shopping around to make sure you’re getting the best deal.

Not only are there lots of different kinds of savings accounts available, but interest rates on many of them are currently through the floor.

So here’s a handy checklist to help you find the highest returns you can on your cash.

Tax and inflation

Inflation is the enemy of the nation’s savers as it’s slowly nibbles away at your nest egg. The basic rule of thumb is that, if inflation is higher than the interest you earn, your wealth is effectively being eroded.

The taxman will also take a bite of the interest you earn. So you should look for a savings account where the net interest (that’s AFTER tax has been deducted) is higher than the rate of inflation.

This is largely impossible with current savings rates – which makes using your full ISA allowance especially important. Your ISA allowance is an amount the government allocates to you every year – and the interest you earn on this amount will be paid tax-free. For this tax year, which ends on April 5, your allowance is £20,000 in cash. If you don’t use you’re allowance by then, you won’t be able to carry it over to next tax year.

http://www.moneysupermarket.com/savings/cash-isas/

Online access

If you don’t need branch access and can run your savings account solely online then you could be offered a higher rate of interest. Think of it in the same way that internet retailers are often cheaper than high street shops.

It’s also worth getting in touch with the bank that provides your current account as it may have higher savings rates for its existing customers.

Fixed rate savings

You rarely get something for nothing, and savings accounts are no different – so in exchange for a high fixed rate of interest, you may have to lock your money away in a bond and forfeit access to it for 12 months or longer.

If you want to get your hands on your money during the length of the bond, or transfer it to another account, you’ll most likely be penalised by way of a drop in interest or an early exit fee. Some fixed rate bonds may even refuse you access entirely.

http://www.moneysupermarket.com/savings/fixed-rate-bonds/

Regular savings

Another means of getting higher returns on your cash is to agree to pay in a minimum amount every month. Known as a regular savings account, these deals will also come with a limit on the amount you can save. They usually come with a 12-month term.

http://www.moneysupermarket.com/savings/regular-savings-accounts/

Bonus rates

You’ll also have to keep an eye on the impact short-term bonuses will have on your savings rate –savings providers pull you in with a headline grabbing interest rate – but it will only last for a certain period of time, usually the first 12 months. When it expires the interest rate on your savings could plummet.

And to make sure you’re getting the most from your money, always keep an eye on the rate of interest your account’s paying, regardless of whether or not it comes with a bonus period.

If the rate is not up to scratch –as with any kind of financial deal – it’s time to shop around for something better.

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