Earn the top rate on savings from £1 to £25,000+

by Jane Baker on 13 October 2009  |  27 comments
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Find out how you can earn the top rate on your savings, whether you're stashing away just £1 or more than £25,000.

This time last year, the top easy access savings accounts paid well over 6.5%, while the best fixed rate bonds offered 7% plus. Halve those rates and you'll be pretty close to where they stand now.

It's not much to write home about, is it?

In fairness, inflation is much lower today than it was back then, but many argue the official rate has very little to do with the real purchasing power of our savings.

So, when it comes to finding a home for your spare cash, you'll need to look harder than ever for a decent rate. With that in mind, here are my tops picks for all savers - whether you're putting away £1 or £25,000+.

£1+

Save what you can, when you can - even if it's only small amount to begin with. Remember, mighty oaks from little acorns grow!

If you're just starting out as a saver, you'll be pleased to hear many of the top easy access accounts can be opened with as little as £1.

Even the current market-leader, Citibank Flexible Saver Issue 6 only requires a £1 opening deposit. In return you'll earn a top rate of 3.3% AER!

Just bear in mind the rate includes a fixed bonus of 2.25%, which lasts for a year. Before the financial crisis stuck, bonuses really weren't worth giving a second thought. But with today's low rates, any account which guarantees a minimum return has got to be worth a closer look. So, with the Citibank Saver, you know you'll earn at least 2.25 per cent for the next 12 months.

After the bonus has disappeared, the rate will be cut to Citi's dismal standard variable rate. This is unlikely to be competitive given that it stands at just 1% today. So be prepared to switch your savings somewhere new as soon as the first year is up.

On the plus side, you'll get proper easy access with this account which means no notice and penalty-free withdrawals as often as you need them.

If you're already a Citi saver you won't qualify for this top rate. The next best choice for you is the ING Direct Savings Account. With this account you'll earn a competitive rate of 3.2% AER. But the great thing is this rate is guaranteed for a year. If Citi reduced the rate on the Flexible Saver by more than 0.1%, ING would have the edge.

Again you'll get true easy access and, like the Citi account, the rate will revert to a much lower standard variable rate which is currently just 0.5%. Note that this account isn't open to existing customers either and that money is protected by the Dutch Central Bank's Deposit Guarantee Scheme and not by the UK's Financial Services Compensation Scheme (the FSCS).

£500+

If you have a little more cash to save, you could earn a better rate by choosing a fixed rate bond. But this is only be a suitable choice for you if you can afford to lock your money up for a while.

You'll also need to consider what might happen to interest rates in the future. After all, if you're earning a fixed return, but the rates paid on variable accounts shoot up in a big way, you'll wish you'd given bonds a wide berth.   

To reduce the risk of getting stuck with an uncompetitive account, I suggest fixing your rate for no more than a year. If you have at least £500 to spare, you could earn a guaranteed rate of 3.7% with the Post Office One Year Growth Bond. 

All you need to do is decide whether an extra 0.40% over the top easy access account justifies having no access to your cash for a year.

I should point out here that you can earn higher rates if you're prepared to tie your cash up for longer. For example, if you choose a five-year bond, you can get 5.30% with Yorkshire Building Society on savings of £100 plus. But since there's no way of guaranteeing this rate will remain competitive over the longer-term, I prefer to stick with a short bond.

£1,000

If you have plenty to put away you might be hoping for better rates, but I'm afraid you're going to be disappointed. There are currently no preferential rates for savers with a few thousand in spare cash. But, on the plus side, all the accounts I've mentioned so far are also open to you.

£25,000

But there's better news for big savers. If you have a lump sum of at least £25,000 and you can afford to give three month's notice before taking any money out, you won't go far wrong with the Investec High 5 account.

With High 5 the rate you earn is always calculated as the average of the top five gross rates published by lovemoney.com partner, Moneyfacts.

The return is updated weekly to reflect the changing rates on the best buy easy access and notice accounts. But, right now, the account is paying 3.35% which beats both Citibank and ING.

This unique account is a real no-hassle option. You can always be confident you're getting a competitive rate without having to continually shop around. But, at the end of the day, you might only earn a small margin above the top easy access accounts which are open to all savers.  

Compare savings accounts at lovemoney.com

More: The top three savings accounts you should avoid | When a bonus isn't a bonus