Maximise Your Savings

How Interesting Is Your Interest Rate?

The top instant access rate is currently on offer from the Alliance & Leicester DirectSaver account, available online or on the phone, paying 6.31% AER on a minimum balance of £1,000. That's good for basic rate taxpayers but not so good for higher rate taxpayers who would effectively see the real value of their money falling.

If you're willing to tie your money up, giving a bit of notice to withdraw funds you can get more from Chelsea Building Society's Call Direct 30 . Its paying 6.40% AER, requiring 30 days notice, on a minimum balance of £250 - that's rate worth considering for higher rate taxpayers - your money would, just, be earning more than the rate of inflation.

As an alternative, rather than just interest, Tesco Savings is offering a rate of 5.75% AER and the incentive of 1,000 Clubcard points to those who open an account before 16 October 2007. You get 500 Clubcard points if you hold a balance of £1,000 or more before 31 October 2007 and another 500 points for holding £1,000 in the account at 30 April 2008. You can use the points to get discounts on your shopping bill at Tesco.

Beware The Sting In The Tail

It's all very well getting a great interest rate but there's more to savings accounts than meets the eye. It is important to read the small print because it has been calculated that around 75% of savings account have some kind of condition attached to them.

These stings include limits on the amount that can be withdrawn, loss of interest if withdrawals are made, restricted account offers to existing members or new savers only and introductory bonuses that make the interest rate look better than it really is.

With Alliance & Leicester's DirectSaver account, mentioned above, for example, you would lose one month's interest on the account balance on making a withdrawal or closing the account. Whereas with Scarborough's Click & Save Notice Issue 2 account, you'll get 6.50% AER BUT only if you're a new customer. It also includes a bonus of 1% at end September 2008 and another 0.25% at end September 2009 so you must remember to keep your money in the account for that long.

Nationwide claims many savings accounts providers offer great headline rates for a limited period only perhaps six months or a year but conveniently forget to tell you when the deal ends. It is calling for the Banking Code to be amended so that providers would have to tell you when a special offer ends.

What all this means is that comparing savings accounts can now be a much more complicated business. If you are happy with the terms and conditions that's fine as long as you are fully aware of what you are getting in to.