Savings rates are finally rising!

Serena Cowdy looks at the pros and cons of the new market-leading accounts.

In the last couple of weeks, new savings accounts have been popping up all over the place. No sooner do I compile a 'savings account round-up' than more good accounts spring up - and I have to start all over again.

I've rounded up the savings accounts now paying the top rates of interest in each category (easy access, regular saving and bonds).

But of course, interest rates aren't everything. I've also outlined the major catches involved with each account, so you can find the one that suits you.

Easy access

Let's start with the easy access accounts paying the highest rates of interest:

Topping the board is the Telephone Extra Account from Birmingham Midshires, and the Alliance & Leicester Online Saver 5 which both pay 3.15% AER. The main thing to bear in mind is that the Birmingham Midshires rate includes an enormous fixed bonus of 2.65% AER for the first 12 months. Meanwhile, the A&L account offers a bonus rate of 1.65% to 2.65% depending on the balance. But this bonus is variable which means it could change at any time.

So, you'll almost certainly need to move your money elsewhere after a year to maintain a competitive rate.

In second place is Leeds Building Society's Online Access Account. The variable 3.05% rate includes a fixed bonus rate of 1%, which runs until July 31st 2010.

Although this bonus rate is smaller than that included in the Telephone Extra Account and A&L's Online Saver 5, you'll probably still need to shift your savings when it comes to an end in order to get a good rate.

This account can only be operated online - and note the £100 minimum balance limitations.

Finally, there's the Coventry Building Society's Poppy Save account, which pays a variable rate of 3% AER. This includes a fixed 1% bonus for the first 12 months, and is guaranteed to be 0.5% above Bank Base Rate until December 31st 2010.

Take out this account and The Coventry will make a donation to The Royal British Legion's Poppy Appeal equal to 0.25% of the average balances held in Poppy Save for each 12 month period, commencing 1 June.

Unfortunately, this account is pretty inflexible. The minimum deposit is a whopping £1,000, the account can only be operated by post, and it imposes heavy withdrawal restrictions (see table). With all this in mind, I would steer clear and try to donate to charity in another way.

Regular savings

Here are the regular savings accounts paying the highest rates of interest:

Way out in front - paying a whopping fixed rate of 8% AER - is the HSBC Regular Saver Account. You can operate this account in-branch or by phone.

But of course, there is also a whopping catch: It's only available to customers who have their monthly salary or retirement income paid to an HSBC Premier Bank Account, HSBC Plus Bank Account, Passport Bank Account or Current Account Advance.

This means transferring the majority of your banking activity across to HSBC - a very big commitment for a rate that's only going to last a year. Because of this, I would only recommend this account if you already operate one of the HSBC current accounts mentioned.

Now, let's look at the Super Fixed Rate Monthly Saver (Issue 7) from Abbey. This also pays 6% AER (fixed). However, it can only be operated in-branch, and to get the 6% rate you must also open a regular investment, pension or protection plan with Abbey.

As with the HSBC account, this is a huge commitment for a year-long savings rate, and personally I wouldn't touch it.

You may be better off going for a more straightforward account, such as the Barclays Regular Saver, which has a lower rate (4.25% AER) - but fewer catches. You must deposit between £20 and £250 a month, and if you make a withdrawal from the account, the interest rate drops to 3.03%AER that month. But at least you don't have to take out another account with Barclays to access this rate.

Bonds

The Base Rate is currently at an all-time low, and when interest rates do start to move upwards, bond holders won't want to be left behind. With this in mind, I'm focusing on bonds that will lock you in for no longer than two years.

In this category, here are the bonds currently paying the highest rates of interest:

A new entry to the savings market tops the table: The 2 Year Premium Gold Account from Close Brothers Limited Treasury Services pays a fixed 4.5% AER and is operated by post.

The main snag here is the hefty minimum deposit (£10,000). And if you want to take advantage of this deal you'll have to act quickly; the rate is only available for applications received up to and including Friday July 3rd (and it may be withdrawn earlier due to high demand).

Next up is the Two Year Fixed Rate Bond from Ruffler Bank. This pays a fixed rate of 4.43% AER, also requires a minimum deposit of £10,000, and is operated by post.

Finally, if you don't have £10,000 to squirrel away, check out the HiSAVE Fixed Rate Account (two year option) from ICICI Bank UK.

It pays a fixed rate of 4.35% AER, takes a minimum deposit of just £1,000 and can be operated online.

Protect yourself

All the accounts mentioned here are covered by the FSCS compensation scheme. To keep your savings safe, never invest more than £50,000 in any one account, OR in any one banking group.

To find out more about savings protection, read Make sure your money is safe.

More: Avoid these scandalous savings accounts! | Dodge these three savings pitfalls!

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