Make the most of high interest rate savings accounts

Fairinvestment.co.uk addresses the savings dilemma currently hitting the UK: Recent turmoil in the financial sector has overthrown the whole investment and savings market as we have known it for the last two decades. The short term growth potential of the 'old favourites' such as property and shares is more than questionable, as house prices plummet and share prices tumble.

Therefore, it does not come as a surprise that investors are at a loss when it comes to keeping their money safe. Where do you put your money in the uncertainty of the current situation? How safe is your money in the bank? What are the best options in order to achieve a decent return on your savings?

For the average consumer who may have a limited amount of savings, but not tens of thousands of pounds to invest, it could pay off to go for safety and look for a bank with high interest rates on savings accounts or bonds.

Despite banks falling like dominoes in recent weeks, depositors need not fear for their savings if they have distributed them prudently across several financial providers. If a bank fails, amounts up to £35,000 (soon to be £50,000) per banking group, including interest accrued, are protected by the Financial Services Compensation Scheme (FSCS). Therefore banks are still one of the safest options for savings.

"The most important thing is that you don't panic or make rash decisions," says Fairinvestment.co.uk's chartered financial planner Sharon Bratley. "If you don't put all your eggs in one basket, you will be on the safe side. Diversifying and investing your money in different places should see you safely through the credit crunch."

Mrs Bratley added: "Consumers might be tempted to go with the big high street names because they seem more stable, however, it is often the less well known banks which offer much better terms, conditions and interest rates on savings. It pays to shop around and not restrict your choice to the most obvious providers."

For instance, Icelandic bank Icesave tops the list of best buys* with an interest rate of 7.06 per cent gross on two and three year fixed rate bonds with a minimum deposit of £1,000, and is only outdone on one year fixed rate bonds by the AA with 7.21 per cent and by the ICICI Bank's HISAVE fixed rate with 7.20 per cent.

For those who need to be more flexible and want to be in a position to withdraw the money from their savings account without any notice, West Bromwich and Scarborough Buildings Societies offer the best rates with 6.56 per cent and 6.51 per cent respectively.

Big high street names will only be found at the top of the list for savings accounts with a regular monthly payment. Barclays offers 7.49 per cent gross if at least £20 per month is paid into the savings account, closely followed by Abbey with 7.25 per cent.

"A big plus to watch out for when choosing a savings account is also the introductory bonus rates some banks offer. My advice is to make the most of it, and switch to another provider with a better offer as soon as the introductory offer runs out. However, make sure that you make a note of when the introductory bonus is withdrawn, as the bank or building society are unlikely to do so, meaning that your hard earned savings could be in an account which becomes uncompetitive" Mrs Bratley concluded.

*All best buys taken from Moneyfacts.co.uk 01.10.2008