To open some savings accounts, you need to deposit £1,000+, but not these beauties, which offer great rates on £1 upwards.
First the good news: according to a new survey from Sainsbury's Bank, there are 39 instant-access, easy access and notice savings accounts which pay annual interest of 5% or more before tax. Now the bad news: the majority of these accounts are aimed at serious savers, because only twelve pay 5% gross AER on balances of £1 or more (including Sainsbury's own Internet Saver Account).
One problem with these high-paying accounts is that many rely on introductory bonuses to boost their interest rates, which then disappear after, say, six to twelve months. In addition, a number impose restrictions or penalties on withdrawals. For instance, several table-topping accounts pay no interest in any month during which a withdrawal is made. So, take out just £20 and you lose one month's interest on your entire balance, even if you have thousands of pounds sitting there. Ouch!
For the record, here is Sainsbury's Bank's analysis of these 39 top-paying savings accounts:
Minimum balances of savings accounts paying 5%+ a year
Minimum
balance
required
(£) | Number of
accounts in
this category |
|---|
| 1 | 12 |
| 50 | 1 |
| 100 | 3 |
| 250 | 4 |
| 500 | 7 |
| 1,000 | 4 |
| 2,000 | 2 |
| 2,500 | 2 |
| 5,000 | 3 |
| 10,000 | 1 |
Total | 39 |
Source: Sainsbury's Bank, September 2006
As you can see, three-fifths of these accounts (23 out of 39) require you to maintain a balance of at least £250 in order to earn a top rate of interest, with twelve requiring balances of £1,000+.
Hence, although any account which pays an annual interest rate that exceeds the Bank of England's base rate is worth having, it still pays to shop around and to check the small print for catches and drawbacks. For the record, these three accounts pay high rates of interest on £1 upwards, plus they are free of introductory bonuses, withdrawal penalties and notice periods:
Account name | Interest
rate
(% AER) | Notes |
|---|
ICICI Bank HiSAVE | 5.15 | Rate guaranteed to be
0.25% above base rate
until 31/12/07. |
Birmingham Midshires
Direct Internet
Savings Account | 5.00 | Rate guaranteed to be
0.25% above the
standard ING Direct
Savings Account rate
until 01/08/08. |
Sainsbury's Bank
Internet Saver | 5.00 | Until 31/12/10, the annual
interest rate will be higher
than the average rate,
based on a comparison
of over 100 equivalent
accounts. |
So, if you want to begin saving seriously but can only start with a modest sum, one of these accounts should be right up your street!
More: Use the Fool to find super savings accounts, 0% credit cards and low-rate personal loans!
Disclosure: Cliff owns shares in HBOS, part-owner of Sainsbury's Bank.
