You may be saving more, but are you getting the best return?

The downturn is making us all more cautious with money and as a survey from National Savings & Investments shows, savings are at a two year high.  On average we are saving 6.90% of income - a return to levels not seen since before the start of the economic downturn.  For the first time in a year people are saving more - an average of £85.21 each month. And the number of people who say they regularly save each month has increased to 50% of the population.

Regular Savings Schemes

So whether you are one of the 50% of the population who ought to be saving or one of those already putting the money aside and struggling to get a good return, where can you get the best rate on your money?  There is a raft of accounts paying a relatively generous 4% gross on regular savings but the problem is the amount you can save is often relatively small.

Norwich & Peterborough (www.nandp.co.uk) is offering 4% gross on a regular savings account.  You can pay in as little as £1 a month up to a maximum of £250.  The account offers instant access on one withdrawal a year and you must contribute to the account every month to qualify for the 1.5% annual bonus.  The base rate of 2.5% is fixed for the first year.  You can open an account at a branch, or by post.  Make a note in your diary when the year end approaches to check what is available elsewhere at that time as you may need to switch. 

N&P also has a family regular savings account which pays a higher 5% gross on savings of £1 to £250 a month but it is only available to families with dependent children under the age of 16, or 18 if they are in full time education.  The flat rate of 2% is fixed for the first year with a 3% bonus if you save every month for a year.  Interest on both accounts is paid annually.

If you are prepared to move your current account to N&P you can open a Gold Regular Saver account which also pays 5%.  To qualify you must transfer a minimum of £500 a month into the Gold Current Account and you can then save up to £250 a month is the Gold Saver Account and earn 5%.

Scottish Building Society (www.scottishbs.co.uk) has a regular savings account paying a variable 4% gross with a minimum monthly investment of £25 – and, most importantly, no maximum.  You can open an account at a branch or by post and the account offers unlimited penalty free withdrawals. 

This is a better rate than that paid on any instant access deposit account and with no maximum on monthly savings you could easily put away £500 a month over the course of the year and have a rainy day fund of £6,000 which you can access at any time in an emergency.  The best instant access deposit account comes from West Bromwich Building Society and offers just 2.3% gross on sums of £1,000 or more – nothing like such a good deal.

Principality Building Society and Saffron Building Society also have regular savings plans with minimum investments of £20 and £10 respectively, both offering a fixed rate for the first year of 4% gross.  Maximum investment in the Principality scheme is £500 a month and just £200 a month at Saffron.  You can open an account at either at a branch or by post but not online.

Cash Isas

 Sainsbury’s Finance (www.sainsburysfinance.co.uk ) has just revamped its cash Isa and is offering a variable rate of 2.6% gross on sums of £500 up to the Isa maximum of £5,100 a year.  The account also allows customers to transfer funds in from other cash Isa accounts, and can be managed online and by telephone.  Interest is paid annually and the account offers instant access. 

But the deposit takers never seem to learn.  When you read the small print and realise that the rate reverts to just 0.5% after the first year the account begins to look like just another rip off.  Why do they do it?

In any case you can get a better return from Newcastle Building Society’s Cash Isa Reward Saving which is paying 2.75% variable on sums of £500 or more.  The account accepts transfer from other Isa providers so check to see what you are earning on earlier cash Isas.  The rate includes a 1% introductory bonus for the first year so you will need to check to see if there is something better available when the account matures.  You can make penalty free withdrawals if you give 120 days notice.  Accounts can be opened at a branch, by post or telephone or on the internet at www.newcastle.co.uk.

Fixed Rate Bonds

There has been little change in the fixed rate bond market with the top rate still reserved for those prepared to commit their money for five years.  Top payer over five years fixed is ICICI Bank offering bonds at 4.75% gross on sums of £1,000 or more on its HiSave bonds (www.hisave.co.uk).