Can you really get up to 12% interest on your savings?

With rates as high as 12% being headlined, it's a good time to be choosing a savings account. But for how long will this situation last and can you qualify for the best savings interest rates simply by handing over your bag of money? Many of the attractive deals are hedged with restrictions and limitations.

These past months lack of liquidity in the lending market has meant that banks and building societies have been desperate to attract cash deposits, hence the mouth-watering offers to savers. Interest rates on offer, despite a falling base rate are reported to be at seven-year highs; the last time savers could choose from such a wide range of accounts paying 6.5% or more was back in 2001.

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At that time the Bank of England base rate was 6% and the best savings account returned 6.6% (Providian National). Now base rate is 5% and there's a raft of accounts yielding 1.5 percentage points above and higher, up to 10% and 12%. The top deals have strings attached, though.

You need to read the small print and act fast; these high rates might not be hanging around for long, now that the Bank of England has unveiled its plan to kick-start the paralysed money markets by injecting £50 billion of fresh liquidity and the minutes of the latest Monetary Policy Committee meeting give clear hints of more rate cuts to come.

High interest but at a price

Fixed rate deals provide some of the best options, but regular savings accounts are also striving for a share of the action. Hence Alliance & Leicester's new Premier Regular Saver account which guarantees 12% interest for a year. Before rushing to your local branch with fistfuls of fivers pause to consider: this excellent return is only available to those prepared to open a Premier Current account (Alliance & Leicester is actively trying to increase its current account market share).

You must also decide your monthly saving level at the outset (between £10 and £250) as you cannot change this amount during the 12-month term. No withdrawals are allowed. The 12% is gross interest, so a year's maximum saving of £3,000 will earn £190, which is less than you would earn depositing the full amount in a fixed rate savings bond returning 6.8%!

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Other regular savings accounts linked to current accounts include two options from HSBC; its Premier, Plus or Passport current account customers can access a regular savings account which pays 10%, while basic or standard current account holders can realise 8% on regular saving.

The Magic 8 savings account from West Bromwich building society pays 7.35% and is not linked to a current account. However, this rate includes a bonus of 2.6 percentage points which is dependent on 12 monthly deposits and no more than two withdrawals during the year. You can, though, pay in up to £1,000 per month, which is a higher maximum than the norm for regular savings accounts.

Abbey's Super Monthly Saver 2 offers 10% (minimum £20 per month), but you must first hold an Abbey Bank account or one of the company's investment, pension or protection plans, and no withdrawals are allowed.

23 April 2008 © Moneyextra.com

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