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Best savings rates - Ask our expert

Dear Chris, I’ve seen some pretty good savings rates advertised in the last couple of weeks.

Have you got any recommendations for getting the best returns?

Cheers,

Max, via email Tuesday 22 September, 2009

On the subject of the best savings rates , our expert says...

Hi Max,

Thanks for getting in touch. You’re right, there have been some attractive new savings deals launched in recent weeks, and now is a good time to think about switching your savings account.

To maximise your returns, the first destination for savings should always be a cash ISA. You can save up to £3,600 in a cash ISA each tax year (rising to £5,100 this October for over 50s and next April for the rest of the population) and any interest you earn on it will be tax-free.

Cash ISA rates are not that impressive at the moment, but the fact that you don’t pay tax on returns means a cash ISA rate of 3% is equivalent to a standard savings rate of 3.75% for a basic-rate taxpayer and 5% for a higher-rate taxpayer.

Plus, by making the most of your ISA allowance each year you can build up your savings over time, and the interest you earn will continue to be tax-exempt. When interest rates improve, the benefits of the interest not being taxed will be even greater.

Guide to cash ISAs

Once you have filled your cash ISA, you should think about storing your savings elsewhere….

If you are sure you won’t need access to your cash for a set period of time, you might want to consider stashing it in a fixed-rate bond. Last weekend, Barclays (www.barclays.co.uk) launched a new range of bonds which are some of the most competitive on the market.

If you are prepared to lock up your savings for five years, you can earn a massive 5.25% interest in a Barclays five-year fixed-rate bond. Or if you would rather opt for a one- or two-year bond, you could earn up to 3% and 4.5% respectively.

More information about Barclays bonds

Alternatively, if you would rather retain easy access to your money, you should look at the top paying instant access savings accounts available.

Two of the best are the ING Direct (www.ingdirect.co.uk) savings account which is offering 3.20% interest on balances from £1, and the Alliance & Leicester (www.alliance-leicester.co.uk) Online Saver account, which is offering 3.15% interest on balances from £1,000.

More information about the ING Direct savings account

More information about the Alliance & Leicester Online Saver account

Whichever savings account you choose, be sure to watch out for any restrictions or penalties and read the terms and conditions before you sign on the dotted line.