Avoid the top two savings accounts!

These two savings accounts pay the highest rates, but we think you should avoid them like the plague. Szu Ping Chan explains why.

It's a good time to be a saver right now. With several banks jostling for your cash, the past month has seen the top spot in the best buy tables change several times.

Competing banks and better interest rates can only be a good thing, but it's also important to look behind the rates to see what really makes the accounts tick.

Because sometimes the bigger the rate, the more hoops you'll need to jump through...

Savings hurdles

Coventry Building Society currently tops the best buy tables with its 1st Class Postal account.

Dubbed by Coventry as an easy access account, it pays a table topping 3.3% AER (including a 1.3% bonus for one year)  - 0.15% more than its nearest rival.

But there's more to this account than meets the eye.

Firstly, the account must be operated by post. This is not a bad thing, but when you take into account postal delays, and that all withdrawals are paid by cheque, this means it will take about 10 days from your request to have the money in your account.

And while your savings are printed on a piece of paper, you won't earn any interest.

If you want to pay in any money, you'll have to deposit at least £1,000 each time, so it's not an account for your loose change.

When you want to make a withdrawal, you'll also have to take out a minimum of £1,000, and can only do this up to four times a year. Any more, and you'll be charged the equivalent of 50 days interest on the amount you withdraw.

It's a similar story with Manchester Building Society's Premier Bonus Issue 6 account. The account is second only to Coventry in terms of the interest rate it offers, and pays 3.16% AER on balances from £1,000.

But in order to gain access to your cash, you'll have to give 35 days notice, and can only make four withdrawals in one calendar year.

Any more than this, and your interest rate goes down to 0.05% AER.

Calculations, calculations

The important thing to think about is how much bagging that best buy means to you.

As a basic rate taxpayer, if you deposited £10,000 and made no withdrawals, you'd earn just £12 more interest over one year with the Coventry account compared to the best penalty-free account, and a whole 80p more if you had your money tied in Manchester BS.

With so many catches, you may want to think twice before going for the best buy.

So what are these 'penalty-free' options I'm talking about?

Alliance and Leicester's Online Saver Issue 5 account and the Birmingham Midshires Telephone Extra account both pay 3.15% AER on balances from £1. That's just 0.01% less than Manchester BS, and just 0.15% less than Coventry.

More importantly, both offer penalty free access to your money, with unlimited withdrawals.

Having said that, the A&L account must be run online, and the Birmingham Midshires account by telephone.

Beware of the bonus

Like Coventry and Manchester BS, both these accounts include a bonus that lasts for a year. Alliance and Leicester offers a tiered bonus from 1.65% - 2.65%, while Birmigham Midshires offers a flat bonus of 2.65%.

Large, 12 month bonuses are a standard feature of most of today's easy access savings accounts.

In the last two years the percentage of easy access savings accounts that include a bonus has increased from 10.8% to 16.4%, while the size of the average bonus has nearly doubled from 0.64% to 1.10%.

We've always disliked bonuses at lovemoney.com. but as the savings market has evolved, I've learned to live with them - as long as you know how they work.

Beware of bonus rates on your savings highlighted that it's important to know whether your bonus is fixed or variable, as it could make a difference in the interest rate you're paid, even within the introductory bonus period.

For example, Alliance and Leicester's bonus is variable, meaning there's no guarantees it won't disappear a few months down the line, let alone after the first year is up.

In contrast, the Birmingham Midshires bonus is fixed, as is Citibank's Flexible Saver Issue 5, which pays 3.10% AER.

And if you don't mind a slightly lower rate, ING guarantees that the whole of your rate - and not just the bonus, will be fixed at 3% AER for one year. This provides the security of a fixed rate bond, with the flexibility of instant access to your cash. Not bad!

Both the Citibank and ING accounts can be operated both online and over the phone, providing greater flexibility for those who don't want to choose between the two.

Safety counts

Finally, I've written a few savings article recently, and several of you have raised questions about how safe ING is.

In the midst of the financial crisis last October, I highlighted some reasons why I thought ING was safe. I still do. The bank is the 10th largest in the world by assets, and recently came 20th in a list of the strongest banks in the world.

But this banking beauty queen is not without its blemishes, and its 20th place ranking was helped by a $13bn (£7.8bn) government injection. ING also posted a loss of $2bn (£1.2bn) last year. Still, when you compare this to RBS's loss of $59bn, ING didn't fare too badly.

ING's compensation scheme works slightly differently to ours, and in the unlikely event that it went bust, you wouldn't be covered by the Financial Services Compensation Scheme (FSCS).

Instead, €100,000 (approx. £86,500) of your money is covered under the Dutch Deposit Guarantee scheme. This is more valuable than the FSCS (which only covers the first £50k of your cash), though some worry that after the Icesave saga, foreign investors would be placed at the back of the compensation queue if it went bust.

Still, I think ING is safe, and if you're a new customer, don't let it put you off.

More: How to choose a savings account / Ditch these best buy savings accounts