Is your savings account beating the base rate?

	Rate (AER)	Notice	Min
	6.52%	No Notice	1
	6.51%	No Notice	1
	6.50%	No Notice	1
	6.30%	No Notice	1
	6.16%	No Notice	1
* Based on £1 Instant Access and is a limited guide to the market

Since the last base rate rise in July, around 40 instant access account providers are paying an interest rate of more than the base rate, 5.75%. To make money from your savings you have to at least beat inflation, currently 3.8% retail price index (RPI), after you have paid tax on the interest you have earned, otherwise the real value of your savings is actually being eroded. A basic rate taxpayer, receiving interest with tax already deducted, would need to be earning at least 4.75% gross just to have the value of their savings stand still.

However, there are still many notice and instant access accounts on the market that fail to beat inflation, never mind keep up with the base rate. Some offer a pittance under 1.5% such as Halifax Liquid Gold which pays 1.3% (liquid gold? More like fool's gold!). The truth is if youre earning anything less than 4.75%, your savings are in danger and you need to trade up to a better paying account quickly. Higher rate taxpayers face an even tougher challenge for their money, needing to earn 6.33% to keep pace with inflation - a rate impossible to get on an instant access account.

How interesting is your interest rate?

The top instant access rate is currently on offer from the Alliance & Leicester DirectSaver account, available online or on the phone, paying 6.31% AER on a minimum balance of £1,000. That's good for basic rate taxpayers but not so good for higher rate taxpayers who would effectively see the real value of their money falling.

Which is the best savings account for you? Let Moneyextra guide you to the right choice with our comparison service.

If you're willing to tie your money up, giving a bit of notice to withdraw funds you can get more from Chelsea Building Society's Call Direct 30. Its paying 6.40% AER, requiring 30 days notice, on a minimum balance of £250 - that's rate worth considering for higher rate taxpayers - your money would, just, be earning more than the rate of inflation.

As an alternative, rather than just interest, Tesco Savings is offering a rate of 5.75% AER and the incentive of 1,000 Clubcard points to those who open an account before 16 October 2007. You get 500 Clubcard points if you hold a balance of £1,000 or more before 31 October 2007 and another 500 points for holding £1,000 in the account at 30 April 2008. You can use the points to get discounts on your shopping bill at Tesco.

Beware the sting in the tail

It's all very well getting a great interest rate but there's more to savings accounts than meets the eye. It is important to read the small print because it has been calculated that around 75% of savings account have some kind of condition attached to them.

These stings include limits on the amount that can be withdrawn, loss of interest if withdrawals are made, restricted account offers to existing members or new savers only and introductory bonuses that make the interest rate look better than it really is.

Searching for the right savings account? Take a look at Moneyextra's guides to saving and investing.

With Alliance & Leicester's DirectSaver account, mentioned above, for example, you would lose one month's interest on the account balance on making a withdrawal or closing the account. Whereas with Scarborough's Click & Save Notice Issue 2 account, youll get 6.50% AER BUT only if you're a new customer. It also includes a bonus of 1% at end September 2008 and another 0.25% at end September 2009 so you must remember to keep your money in the account for that long.

15 July 2008 © Moneyextra.com

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