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Candid Money Guide to: Reviewing savings accounts

It’s very easy to neglect how much interest you’re earning on your savings. But chances are if you opened a competitive variable rate account over a year ago it’s probably far less competitive today. And the rate of interest you earn matters: on a balance of £10,000 moving from a mediocre rate to a competitive one could earn you around £250 – £300 extra interest a year (before tax).

Action Points

1. Check the rate of interest paid on your existing savings account(s)

Simply go to the relevant bank or building society website and look for a link called ‘interest rates’ in the savings section. If your account is not listed, check whether there’s another link for ‘closed’ accounts, it should be there. Alternatively, you can always phone them up (if you can bear dealing with call centres).

The rate you want should be marked ‘AER’ and will be shown gross, i.e. before any tax is deducted. And remember, if the rate includes an ‘introductory’ bonus make a note of when the bonus ends.

2. Ask yourself whether the type of account(s) is appropriate

If your existing account is branch based then would you be happy using the post of internet instead if it means a better rate? And if your account requires a notice period to access your money is this still suitable?

3. Can your savings be held more tax efficiently?

If you’re a taxpayer and have an available cash ISA allowance then consider using it to enjoy tax-free interest. Plus, if your partner is in a lower tax band than you then holding savings in their name should reduce the overall tax paid on interest (although you’ll obviously have to trust them with the money). Use our Couple's Savings Tax Calculator to find out whether you could save tax this way.

4. Should you opt for a fixed rate?

If you’re happy tying up your savings for a year or more then opting for a fixed rate of interest is an option. At present fixed rates tend to be higher than variable rates, so the risk is the extent that interest rates might increase in future. My view is that UK interest rates will probably remain low for at least another couple of years, but others may argue differently, so you’ll need to make up your own mind.

5. Search for a better deal

Once you’ve decided on the most appropriate type of account then shop around for the best deal. Price comparison sites provide a fairly straightforward way to find the highest rates although they are rather salesey. I personally find Moneyfacts more informative than most. The highest rates often include an introductory bonus for around 12 months. These accounts are fine provided you make a note to shop around again when the bonus ends.

Once you’ve found a good deal you simply need to open the new account and transfer savings from your existing account.

6. Are you a non-taxpayer?

If you’re a non-taxpayer then ensure your interest is paid gross by completing HMRC form R85 and giving it to your bank or building society.

Beware the ‘nearly zero’ accounts

Pretty much all the banks and building societies have accounts that pay almost no interest whatsoever. I’ve highlighted a small selection below, but there are plenty more. If you have savings in one of these accounts then transferring to a better rate ASAP would be a smart move.

AccountInterest (AER gross on lowest balance)
e-savings account 0.10%
Cash ISA 0.10%
30 Day Savings Account 0.10%
Active Savings 0.20%
Postal Savings 0.10%
Bonus Saver 0.05%
Easy Saver 0.10%
Cheltenham & Gloucester
Direct Transfer 0.05%
London Account 0.05%
90 Day Account 0.05%
Branch 10 0.05%
Direct 30 0.05%
Investment Account 0.05%
Variable Rate Web Saver 0.10%
Variable Rate ISA Saver 0.10%
Premium Savings Direct 0.11%
Instant Saver 0.10%
Saver Reward 0.10%
Extra Income Saver 0.10%
Liquid Gold 0.05%
60 Day Gold 0.10%
Flexible Saver 0.05%
Premier Savings 0.10%
Instant Access Savings 0.05%
Lloyds TSB
No Notice Saver 0.10%
Exclusive Saver 0.10%
Flexible Savings Account 0.10%
Gold Saver 0.10%
Instant Access Saver 0.10%
Online Saver 0.10%
Platinum Saver 0.10%
Standard Saver 0.10%
Select Saver 0.10%
e-Savings Plus (if 6+ withdrawals /yr) 0.10%
InvestDirect 0.20%
CashBuilder 0.10%
Bonus 30 0.20%
Instant Access ISA 0.25%
First Reserve 0.10%
Reward Reserve 0.10%
30 Day Bonus Reserve 0.10%
Savings Direct 0.10%
e-savings Plus 0.10%
Diamond Reserve 0.10%
Telephone Saver Plus 0.10%
Northern Rock
Save Direct 0.25%
Save Direct 50 0.25%
2d Accounts 0.25%
Select Access 0.25%
Branch Instant Access 0.25%
Easy ISA 0.10%
Instant Access Saver 0.10%
Monthly Saver 0.10%
Instant Access ISA 0.10%
Super ISA 1 0.15%
ISA Saver 0.10%
Platinum Savings Deposit Account 0.15%
Passbook Saver 0.10%
Direct Premium 0.10%
Everyday Saver 0.10%
TimeSaver 0.10%
Postal Notice Account 0.10%
Branch Saver 0.10%
Direct Notice 0.10%
Direct 60 0.10%
60 Day Plus 0.10%
Bonus 120 0.10%
Bonus Account 0.10%
All rates as at 29 April 2010

© Candid Money Limited 2012.