COMMENT
Find A Superior Savings Account

By Cliff D'Arcy
December 9, 2005

I'm pretty laid back when it comes to most aspects of modern life. However, despite being a fan of lazy living, I do take time to make my money work harder. My view is that having worked to make this money, it's only fair that my money earns its keep by making me superior returns.

For example, I have a savings pot of "hot money" that I'm willing to move around every so often in order to enjoy the highest risk-free rates of interest. What's more, as I showed in How Smarter Saving Makes You Richer, boosting your annual interest rate by a percentage point or two does make a huge difference over time, thanks to the wonder of compounding.

If you're a taxpayer, your first point of call should be a Best Buy cash mini-ISA, which is a special kind of savings account which pays tax-free interest, and into which you can save up to £3,000 per tax year. With a cash mini-ISA, it's possible to earn 5% a year on your spare cash without handing over a penny to the taxman.

Alas, I can't use cash mini-ISAs any more because, as a keen investor in shares, I open a shares maxi-ISA each tax year, into which I pay the maximum £7,000. As you cannot have both a maxi and a mini ISA in the same tax year, I am unable to squirrel away any more cash into a cash mini-ISA.

Therefore, as I can't stash my cash in an ISA, I make sure that it pays its way by being in a table-topping no-notice account. Personally, I don't bother with notice or fixed-rate accounts, which lock away your money in return for (supposedly) higher rates. That's because the best no-notice accounts - which are usually online accounts - beat practically every other account that comes with strings attached.

So, let's look at how much your emergency fund or nest egg could be earning you, according to the Best Buy tables of Moneyfacts, plus other sources:

Provider/Account	Annual interest rate	AER	Comments
On £100+ (starting small, but with big plans)
ICICI - HiSAVE	5.03%	5.15%	Interest paid monthly.
Alliance & Leicester - Online Saver Issue 2	5.15%	4.75%	Includes 0.90% bonus until 30/06/06.
Northern Rock - Tracker Online	5.01%	4.65%	Includes 0.71% bonus for six months.
On £1,000+ (heading in the right direction)
ICICI - HiSAVE	5.03%	5.15%	Interest paid monthly.
Alliance & Leicester - Online Saver Issue 2	5.15%	4.75%	Includes 0.90% bonus until 30/06/06.
Northern Rock Tracker Online	5.01%	4.65%	Includes 0.71% bonus for six months.
On £25,000+ (minted!)
Cahoot - Bonus Savings	5.25%	4.94%	Includes 0.75% bonus for six months, then 0.25% bonus for three months.
ICICI - HiSAVE	5.03%	5.15%	Interest paid monthly.
Alliance & Leicester - Online Saver Issue 2	5.15%	4.75%	Includes 0.90% bonus until 30/06/06.

Just a few things to note:

1. Most Best Buy accounts, including the majority of those above, boost your rate through the use of short-term introductory bonuses. If you can't be bothered to move your pot around every, say, six months, then choose an account which pays a high bonus-free interest rate, such as ICICI's HiSAVE.
   
   
2. The above rates are gross (pre-tax) annual rates so, if you're a taxpayer, you could lose up to two-fifths (40%) of your interest to the taxman each year. This explains the appeal of cash mini-ISAs!
   
   
3. AER means Annual Equivalent Rate, which is a measure designed to make it easier to compare savings rates. It illustrates what your interest rate would be if interest was paid and compounded once each year. Here's a neat trick: when the gross rate is higher than the AER, you know that the account includes introductory bonuses. When the AER is higher than the gross rate, you know that interest is paid more frequently than once a year, usually monthly.

So, if your savings are tucked away in an account that pays annual interest of 5% or more, give yourself a pat on the back (I just did!). If they aren't, it's time to kick your savings account into touch!

More: Check out these superior savings accounts | Triple Your Savings Interest Today!