Shopping around the key to getting top savings rates

Once upon a time we used to feel a certain loyalty towards our banks. Now, most of us accept that - when it comes to our savings - a degree of promiscuity is required to continue to get a half-decent return on our cash.

Although customers may benefit from attractive interest rates initially, these tend to plummet after a year, as banks turn their backs on them and focus their efforts on catching the eye of new customers.

So, the savviest savers are the 'rate tarts' who keep moving savings accounts to ensure they are always earning the best possible rate of interest.

Switching accounts to chase the best rates has always made financial sense, but in a low-interest, high-inflation environment it becomes even more important to get the best rate you can. In fact, leaving your money in a low, or even nil-paying, account is the equivalent of leaving your savings stacked up in piles of cash next to an open window: inevitably your cash will lose its value.

Read our latest round up of the best savings rates around

So how can you work the market to ensure your savings are always getting the best possible return?


The first place to put your savings is in an individual savings account (ISA). This is because any interest you earn is tax-free. To illustrate this, a taxed savings account paying 3% interest would in real terms pay 2.4% to a basic-rate taxpayer and 1.8% to someone in the higher tax bracket. But savers would get the full 3% interest from their ISA.

This year (2011/2012) you can save £5,340 in a cash ISA. Only when you have used up your ISA allowance should you look at ordinary savings accounts (although there are a few exceptions).

Bonus rates

Whether you are looking for an ISA or an ordinary savings account, if you glance at the top of the best buy tables, you will see that the overwhelming majority of easy access accounts include bonus offers.

Indeed, the bonus rate can make up the bulk of the interest paid.

For example, Santander's Easy Access Online Saver pays 3%, including a 2.5% bonus for the first year. Forgetting to shift your money after a year would leave you earning just 0.5%.

Typically, though, bonus rates are a bit lower - between 1.2% and 1.5%. But the interest you'll receive once they expire is still far from competitive; for instance, Nationwide's MySave Online Plus account pays 3.05%, dropping to 1.54% after the first year (minus the 1.51% bonus rate). Alternatively, the top easy access account without a bonus is currently from Northern Rock and pays 2.75%.

So, given that bonus rates tend to dominate easy access accounts, going for one of these deals will maximise returns. Just make sure you check when the special rate expires.

"Typically, bonus rates last for 12 months, but there are a few accounts on the market where bonuses last for around 18 months," advises Michelle Slade, spokesperson for Moneyfacts.

Those bonus rates that last longer than a year and are currently available apply to ISAs rather than taxed easy access savings accounts. Birmingham Midshires, for example, pays its bonus rate for 15 months, while Lloyds extends its bonus period for 18 months.

"While ISA customers are advised when a bonus rate is coming to an end, this isn't the case on standard savings accounts," warns Slade.

Check when the bonus period is ending - and make a note in your diary a month beforehand to give you time to switch to a better deal before your interest rate drops.

Switching accounts

Bear in mind that ISA transfers can take up to 15 days. You'll have to follow the official transfer process to ensure you don't lose your tax-free allowance. Your new provider will ask you to complete a transfer form and will then do the legwork for you.

Moving between other savings accounts should be much quicker, usually a working week. You can simply cash in your old account and open a new one.

Some current account providers offer existing customers preferential rates to discourage them from moving their money. First Direct and HSBC, for example, reward their paid-for current account customers with regular savings accounts that pay 8%. And Halifax offers an extra 0.2% on a range of savings and ISAs.

All of these offers only apply for 12 months so rate tarts will need to look around for a new savings home after a year.

Like bad chess players so focused on their own next move that they don't even see the opponent's play, rate tarts may make the mistake of being so intent on chasing the best rates that they ignore penalties that may apply. Although interest rates on regular savers and fixed-rate bonds tend to be higher than easy access accounts, there are penalties for cash withdrawals, with interest rates slashed. Some prohibit early withdrawals altogether.

Similarly, it's no good plumping for the prize interest rate if the account doesn't match your circumstances.

Take fixed-rate bonds: these are best suited to savers who have a lump sum they won't need to access for at least a year; it doesn't make sense to tie up your savings if you don't have an emergency fund to fall back on if the boiler breaks down or you lose your job.

Monthly savers tend to be better suited to regular savings accounts or instant access offers.

How you plan to access your account will also have a bearing on the interest rate you can get. The most competitive accounts are generally internet-only, so you may have to sacrifice some interest if you want branch access.

While the best rate tarts are happy to hop from one high-interest rate to the next to work their cash to the max, they also accept that their own personal requirements will affect the rate they can get.

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Your Comments

These days it feels discouraging to put money into a savings account, with rates of about 2.5% its better to pay off debts.. I remember the days of 5%!