Why your savings really are safer at the bank!

If you're looking for a safe place to stash your cash, Serena Cowdy can help.

If you really don't trust your bank any more, you might be tempted by this unusual bed, created by bed specialists Feather & Black.

Pull out one of the drawers and you'll find a safe cleverly concealed in the base of the divan. According to the makers, it comes with a sturdy lock, and is big enough to store a stack of notes - as well as other valuables such as jewellery.

So is it the answer to all your banking needs?

Money mishaps

Well, it's certainly safer than leaving your cash lying around the house. According to figures from the Bank of England, last year Britons put in claims for some £34 million worth of bank notes that they'd managed to tear, wash, burn or otherwise mangle.

This included 4,916 claims - totaling £113,000 - for notes that had apparently been chomped and chewed by family pets.

Another £82,128 of cash was accidentally washed, while notes tucked away for 'safekeeping' were forgotten and ended up being burnt in ovens and rotting under floorboards.

So I don't think it's time to forsake bank for bed just yet...

More traditional alternatives

One thing that can be guaranteed is that any money you keep under the mattress won't be earning any interest at all. Savings rates might be low at the moment - but they're not that low!

If you're looking for a safe place to stash your cash - without any nasty surprises - a savings bond might be the right choice for you. And if you go for a one year bond, you can still get a decent, fixed rate of interest without the lengthy commitment.

Here are my top picks:

Gold, silver and bronze

For people with a lump sum of at least £1,000, my top pick would be the ICICI Bank UK HiSAVE Fixed Rate Account. It's currently offering the highest rate on the market for a one year bond - a juicy 3.9% AER.

If you're willing to lock your money away for two years, you can make an even better rate of interest (4.1%) with its sister product, the 24 month bond. Alternatively, if you want to spread your money across different banks, you may also want to consider the Cahoot 2 year fixed rate bond, which pays 4.01%.

You may also wish to consider locking your money away for five years to get a better rate. Nationwide is currently paying a whopping 4.15% on its 5 year fixed rate e-bond, for example.

Just be aware that you can't make additional deposits into any of these bonds once they've been set up with an initial amount.

So, in second place I'm going for the AA Internet 1 Year Fixed Rate Bond. It still offers a decent rate of 3.75%, and the main advantage is that it requires a lower minimum deposit than ICICI's offerings (£500).

In addition, you are allowed to make additional deposits into the account during the life of the bond.

Third on my list is the 11 Month Fixed Rate Bond from Birmingham Midshires. It does offer a slightly lower rate (3.73%), but could be a good option if you have less than £500 to stash away.

And as with the AA's bond, you are allowed additional deposits during the life of the account.

A word of caution

When it comes to protecting your savings, it pays to check which banking group each account provider belongs to.

This is because the £50,000 savings protection you're offered under the Financial Services Compensation Scheme (FSCS) applies only once to money held by a particular group.

For example, both the AA and Birmingham Midshires are part of the HBOS group. So if you decided to put £50,000 into an AA bond - and £50,000 into a Birmingham Midshires bond - only £50,000 of the total £100,000 would be covered by the FSCS commitment.

Remember the real value of savings rates

A savings rate of 3.9% may seem a bit lousy when compared to the bumper rates of 6%+ we were enjoying a year ago.

However, the important thing is whether your savings rate beats the rate of inflation (the general rise in prices across the economy). In real terms, it's this relationship that determines whether you're better or worse off.

The rate of inflation in the UK is currently falling rapidly. Indeed one measure of inflation, the Retail Prices Index (RPI), fell to zero this week for the first time in 49 years.

Many economists now believe a period of deflation is around the corner. In a nutshell, all this means that choosing a savings rate of 3.9% now - fixed for the next 12 months - could actually be a very good move indeed!

Compare savings with lovemoney.com

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