Great saves

A base rate rise is in the air, but you would not know it to look at savings rates. So far this year about 40 institutions have cut the level of interest they pay to savers on some or all of their accounts, despite the fact that the base rate has remained unchanged for ten months. Just one type of savings product appears to be offering better returns now than at the start of the year - fixed-rate bonds.

"Fixed rate bonds have been going mad; everyone has been increasing rates," says Rachel Thrussell, head of savings at financial information company Moneyfacts. "Two weeks ago, you were lucky to get 5%, now you can get 5.31%." That rate is available from Nottingham building society and Heritable bank.

Both institutions ask you to lock your money away - Nottingham until February 2008 and Heritable for either three or five years; and both will only accept one-off deposits - Nottingham of at least £1,000 and Heritable of at least £2,000.

The higher rates are not just reserved for savers with sizeable sums to put by - Northern Rock is offering a rate of 5.25% on deposits of more than £1 paid into its one year fixed-rate bond, while Anglo Irish bank will pay the same rate on sums of £500 and over held in its four-year bond.

There is a wide choice of bonds paying above 5%, so savers should be able to find a decent rate to fit their timeframe and how much they want to put away. But they should not hang around, Thrussell says.

"We suggest they act quickly. We've seen a few cases recently where a product is launched and withdrawn within a few days," she says. This is because of the bonds are structured, which means that there are limited funds available to pay the advertised rate. After the money has been allocated, the provider will pull the bond and look to lend or borrow more money to fund the next issue, which will usually pay a different interest rate.

Regular savers
Most of the rest of the savings market is made up of accounts with variable interest rates, but over the past 18 months a number of fixed-rate regular saver accounts have come on to the market offering what seem seem to be higher rates than fixed rate bonds. However, the terms and conditions of these accounts mean that not only are they unsuitable for some savers, the rate most of your money earns is nothing like the advertised headline rate.

Alliance & Leicester's chart-topping 10% Premier Regular Saver account requires customers to pay in between £10 and £250 each month for a year, with no extra deposits and no withdrawals. Because only the first payment is in the account for a year, that is the only sum that will earn the full 10%. As a result, A&L says a saver paying in the maximum £3,000 over the course of the year will earn £150 interest before tax - a real return of just 5%. The account is also only available to those prepared to move their current account to the bank.

Other high street banks have similar offers: Lloyds TSB's new Monthly Saver account pays 8% for two years, HSBC's Regular Saver pays 8% for one year and Barclays Regular Saver pays 10% for one year. All are similarly restricted to the banks' current account customers, although they are available to existing customers too, unlike A&L. Otherwise, these accounts have similar terms and conditions, with monthly payments capped at £250 and restrictions on withdrawals. Lloyds TSB's account varies slightly by allowing customers to pay in an initial lump sum of up to £500 and to make withdrawals.

Stuart Glendinning, managing director of moneysupermarket.com, says the fact that these accounts are conditional on savers taking other products from the banks mean they are not for everyone. Anna Bowes, investment manager at IFA Chase de Vere, says the Alliance & Leicester deal is "probably the only one worth transferring your current account for", because the rate paid on current account balances is much better than most others on the high street.

Several institutions offer similar deals to those who are happy with their existing current account provider. They include Halifax, which offers a rate of 7% for a year on deposits between £25 and £250 a month, and Stroud & Swindon building society, which pays the same rate on up to £1,000 a month.

Best buys
But savers who want the flexibility to pay in money and withdraw money throughout the year will have to look elsewhere. For the best rates on easy access accounts they will need to go online, Thrussell says. "The top rates are on the internet accounts, followed by post and phone, followed by branch accounts," she says. "The more the customer does themselves the higher the rate."

The top easy access account on Moneysupermarket's best buy table is ICICI bank's internet-only HiSave account paying a rate of 5.15%. "There's quite a differential between ICICI and the next easy access account - Birmingham Midshires' internet account, which pays 4.95%," says Glendinning.

Nevertheless, the fact that savers are unfamiliar with ICICI - an Indian bank trading online in the UK - seems to be putting them off. "We can see lots of people electing to view details of organisations offering lower rates but with more recognisable names," he says.

Savers who do opt for the HiSave account can start saving with just £1. They can access their money when they want, without penalties, and are protected by the FSA and the financial services compensation scheme, so their savings are as safe as if they banked with a UK-based organisation.

Bonuses
The rate on Birmingham Midshires' account includes a 0.65% bonus, which are becoming increasingly common as providers battle to top the best buy tables. Often the bonuses, which can be quite sizeable, last for just six months, and after that period the rate on the account can look less than competitive.

For this reason, Bowes says bonuses are best avoided by most savers. "They do well for people who are prepared to shop around and move their money, and those who only want to invest for a short term anyway, but if you are going to put your money somewhere and leave it you should look at something more consistent."

Bowes says one of her favourites is Anglo Irish's Easy Access Deposit account that pays 4.8% on balances of £500 and over, while Thrussell says Nationwide and Yorkshire building societies "don't get tend to drawn into the bonus bunfight and tend to pay a good rate to all their customers". Nationwide, which did recently cut some savings rates, offers 4.55% on £1 or more invested in its online e-Savings account, while Yorkshire offers 4.7% on its online account.

All of these accounts are subject to tax, so for most savers the amount that ends up in their pocket will be lower than the quoted interest rate. This makes it a wise idea to consider using a cash Isa to house the first £3,000 of your savings, if you have not already used your Isa allowance. To match the 5.3% payable on Portman building society's 15-day notice Isa, a basic rate taxpayer would need to earn 6.6% in a taxed account.

For more of the best value savings accounts, see our Compare and Buy guide.