Earn 5.4% on your savings!

Can't stand instant access accounts with darn bonus rates? Perhaps it's time to fix for the longer term, and earn 5%+ while you're at it...

A couple of months ago, I wrote about the launch of several new fixed rate bonds, and how rates of 4% and above were on offer if you were willing to lock your money away.

Savings as a whole is looking up. Just this month, Alliance and Leicester and Birmingham Midshires launched two new savings accounts paying market leading rates of 3.15%.

But both accounts come with hefty bonuses, meaning once 12 months is up, unless you're quick off the mark, you'll be stuck with an account that pays a paltry rate.

So, if you have money you're willing to lock away, and want a decent, guaranteed return without wanting to keep moving your cash, a bond may be a good choice.

Here are the best rates on offer in the bond market at the moment:

Barnsley and Yorkshire Building Society share the top spot, and both pay 5.4% on their fixed rate bonds.

The only catch? You'll need to lock your money away for FIVE years.

The thought of fixing for such a long time certainly proved a turn-off for my colleague Ed Bowsher, and he outlined his reasons for sticking to easy access accounts in a recent video.

I agree. Five years is an extremely long time in the financial world, especially when you consider the base rate moved from 5.25% to an all time low of 0.5% in just 13 months.

Of course, global financial crises don't happen every day. But all these rate changes show how quickly things can change.

That said, the base rate is unlikely to change until next year. So if you want to make gains right now, or just want the peace of mind that your savings will grow at a guaranteed rate for the next five years, these bonds are paying nearly 11 times the base rate, which is unheard of in savings terms.

You may also remember that Yorkshire BS took control of Barnsley last year, when it emerged the minnow lost millions in the Icelandic banks saga.

So bear in mind if you open an account with both building societies now, you will only be covered once under the Financial Services Compensation Scheme (FSCS), and only £50,000 of your money is protected in total.

Alderwho?

A name you've probably not heard of before in the tables is Aldermore.

Aldermore is not that new to the banking game, and the bank started as a privately owned business in the 1960s. It later moved into the banking world through commercial property lending and deposit-taking on a very small scale.

Last year it was taken over by AnaCap Financial Partners, which is a private equity group backed by Goldman Sachs and the State of New Jersey's pension fund, and hopes to grow its business on a slow but steady scale.

More importantly, Aldermore is regulated by the FSA, meaning £50,000 of your cash is protected under the FSCS.

For all the talk about rates and how much you can get, there is also the issue of accessibility. Do not lock any money away which you may need, as most bonds will not give you access to your cash before the term ends - or will impose a hefty penalty for doing so.

So, if you're looking for security, by all means lock your cash away. But bear in mind, it would be five years before you get that key to your cash back.

Don't forget your ISA allowance

The rate of 5.4%, offered by Barnsley building society, may look good on paper, but if you pay tax, the interest rate you'll actually receive will be much less than this.

For example, as a higher rate taxpayer, the actual return you'll get on an account paying 5.4% is just 3.24% after tax - a huge chunk off what was a juicy rate.

This is why it is vital to look at ISAs as well as bog standard bonds when searching for a good home for your cash.

The best fixed rate ISA at the moment is Principality's 3 year Direct Fixed Rate Cash ISA, which pays 4.2%. This is equivalent to 5.25% gross to a basic rate taxpayer, or an astonishing 7% for a higher rate taxpayer.

This is much higher than the rate you'd get on the best bond, and you won't have to lock your money away for as long.

If you need instant access to your cash, Intelligent Finance offers a rate of 2.75% on its cash ISA, which is the equivalent of 3.44% if you're a basic rate taxpayer and 4.58% for a higher rate taxpayer.f

Both these rates are better than the 3.15% you'll get with the best instant access accounts, just bear in mind that the current cash ISA limit is £3,600, although this is set to rise to £5,100 from October if you're over 50, and April next year for everyone else.

Alternatively, if you've used up your ISA allowance, want a fixed rate and instant access, a good compromise is the ING Direct savings account. It pays a much lower fixed rate than any of the fixed rate bonds on offer, at just 3%, but your money is instantly accessible. So you could always withdraw your money from this account and put it in a higher fixed rate bond when higher rates become available.

More: Top savings accounts to suit everyone / Watch out for these savings accounts