COMMENT
Become A Better Saver This Year

By Cliff D'Arcy
January 4, 2006

In theory, the golden rule of saving is very simple: earn the highest rate of interest that you can find from a risk-free account. In other words, if you prefer the safety of cash to the potentially higher returns to be had from investing, then make sure that you make as much interest as you possibly can.

Ah, but there's the problem: in the real world, finding the perfect account to suit your individual needs isn't easy. In fact, with more than four thousand savings account to choose from, picking your ideal account is fiendishly difficult! Hence, you need some quick shortcuts to get you to where you want to be. These three should do the trick:

1. Open a cash mini-ISA every tax year

Don't be put off by the fancy name, because a cash mini-ISA is simply a savings account that pays tax-free interest. Hence, if you pay tax, a cash mini-ISA should be your first port of call, because you don't lose any interest to the taxman, plus these accounts pay some of the very best rates around.

For example, with a cash mini-ISA, you could earn as much as 5% a year tax free in a Best Buy account. On the other hand, earning pre-tax 5% in a taxed savings account means getting 4% after basic-rate tax (at 20%), or a mere 3% after higher-rate tax (at 40%). Anyone aged sixteen or over can open a cash mini-ISA, but there is a ceiling on how much you can contribute, which is £3,000 per tax year. You can learn more about these little beauties here.

2. Get a Best Buy no-notice savings account

For your everyday savings, emergency fund or nest egg, you need an account which pays high rates of interest, but gives you easy access. Forget about trying to earn a few extra quid by locking away your money in a notice or fixed-rate account, because there are some smashing no-notice accounts to be had.

For example, recent entrant ICICI Bank's HiSAVE account has stolen a march on its rivals by offering a tidy 5.15% AER on deposits of £1 or more, with no strings attached. It also guarantees that its rate will be at least 0.25% above the Bank of England's base rate (currently 4.5% a year) until the end of 2007.

Elsewhere, the First Direct e-Savings account pays 5% AER on £1+, but you lose a month's interest if you make a withdrawal in that month, so this account is only for patient and disciplined savers. Alliance & Leicester's Online Saver Issue 2 pays 5.15% (4.69% AER) on up to £25,000, including a 0.9% bonus until 30 June 2006.

Northern Rock's Tracker Online pays 5.01% (4.65% AER) on £1+, which includes a 0.71% bonus for six months, and online bank Cahoot's savings account pays 4.75% a year (4.85% AER), also on £1+.

3. Be disciplined: become a regular saver

If you're anything like me, you find it hard to make sure that there's at least a little money left at the end of the month. In truth, many of us find that we often have more month than money, which makes ad-hoc saving very tricky indeed!

That's why I'm a big fan of regular saving: putting aside a set amount of money each month in order to build up a decent-sized pot, perhaps to pay for next Christmas, a holiday, wedding or similar. A monthly standing order or Direct Debit can be incredibly useful, especially if you're the sort of person who spends anything that's left over at the end of the month.

However, be warned: although regular-savings accounts pay the highest rates of interest by far, claiming these rewards requires a degree of discipline. Miss a payment and you could see your juicy interest rate decimated! According to the Moneyfacts database, these are the Best Buy regular-savings accounts presently, most of which require twelve consecutive monthly payments to secure the advertised rate:

Company & account name	Interest rate (% AER)	Contribution limits (£)	Restrictions
Alliance & Leicester Premier Regular Saver	10	10-250 per month	Must open new A&L current a/c to qualify
Norwich & Peterborough BS Gold Savings	8	20-250 per month	Must pay £1k+ into N&P Gold current a/c
HSBC Regular Saver	8	25-250 per month	Must pay salary or income into HSBC current a/c
COVENTRY BS Family 1st (Child Benefit a/c)	7.25 in year 1	1-500k balance	Various restrictions apply
Halifax/Bank of Scotland Regular Saver	7	25-250 per month	One a/c per customer

So, if you fancy earning 7%+ a year, then regular-savings accounts may be right up your street!

Here's hoping that you become a superior saver in 2006!

More: Check out the great rates in our Savings centre.