Here's one new way to stop your savings falling victim to falling interest rates, without tying up your cash in a bond.
The past few months have been pretty gloomy for savers. With the base rate at a record low of 1.5%, and further cuts still possible, some may be wondering whether it's even worth saving at all.
But, as Mr. Darling keeps drumming into us, these are exceptional times, and with banks still keen to boost their balance sheets, many are still offering rates of double the base rate to entice you to save.
If you're willing to lock your money away, the returns are even better, with market leading ICICI still offering 4.65% on its 12 month HiSAVE Fixed Rate Account. Be quick though, as I doubt this juicy rate will be around for much longer.
However, if you're reluctant to fix, there is one other way you can assure yourself a guaranteed level of return without tying your money up - by choosing an account with a bonus.
Thinking outside the box
Traditionally, we've always been against accounts with bonuses, which push accounts to the top of best buy tables only to lag behind three to six months later when it expires.
However, not only are bonus rates getting larger, but the periods for which they are paid are becoming much longer, with bonuses lasting a year becoming the norm.
In this way, bonuses are no longer just the icing on the cake, they are slowly becoming a guarantee that the interest rate you'll receive won't fall below a certain level, even if the base rate does.
Here's a list of the top five instant access accounts with the biggest bonuses:
| Provider and Account | Interest Rate (AER) | Minimum Balance | Bonus |
|---|---|---|---|
| Egg Savings Account | 4% | £1 | Includes 2% variable bonus for 12 months |
| ING Direct Savings Account | 4% | £1 | Includes 1.95% fixed bonus, applicable for 12 months |
| Bradford and Bingley | 3.6% | £1,000 | Includes 1% fixed bonus for 12 months |
| Citibank Flexible Saver Account Issue 4 | 3.56% | £1 | Includes 1.61% variable bonus for 12 months |
| Abbey Instant Access Saver (Special Issue 2) | 3.5% | £1,000 | Includes 1% fixed bonus for 12 months |
As you can see, market leaders Egg and ING Direct offer huge bonuses, doubling the standard interest rates, and ensuring a healthy, if not massive return.
It's also important to remember that these accounts are instant access, so while the bonus portion ensures you'll at least a guaranteed level of return on your savings, unlike a fixed rate bond, you'll also have the freedom of being able to withdraw or pay in money as you please.
Making the distinction
An important thing to note about these bonuses is that while the ING Direct and Bradford and Bingley bonuses are fixed for 12 months, both the Egg and Citibank bonuses are variable, meaning they could go down at any time.
In this respect, nothing is guaranteed, and for this reason, although the Egg bonus is larger, I think the 1.95% fixed bonus with ING is better.
In short: If you want the guarantee, always opt for a fixed bonus.
Act quickly
You also have to be quick if you want to bag a bonus. Former market leader Tesco recently withdrew the 1.5% bonus on its popular Internet Saver, and now pays a lacklustre 3.6%. In addition, ING Direct's bonus has recently fallen from 2.17% to 1.95%. So act soon.
If you choose an account with a bonus, also make a note of when it ends, so you can switch to a better account in good time.
At the end of the day, nobody quite knows where interest rates will be a year from now, but i think it's a good idea to hedge your bets with a bonus.
In this way, even if Britain follows in the footsteps of Japan and slashes rates to zero, you'll still be chuckling (if perhaps not laughing) all the way to the bank.
More: Get Real With Your Savings! / Avoid These Savings Accounts