Make the switch to better rates

Thousands of people are earning miserable rates of interest in savings accounts operated by major high street banks when they could earn up to 20 times' as much ... simply by switching accounts.

At a time when bank base rates are the lowest since the early Sixties, and many of the larger savings institutions are paying well under 2% on their instant-access accounts, it's even more important for individuals to resist inertia and shop around to get the best return possible.

Even some current accounts pay interest many times more than the worst savings rates. This week Alliance & Leicester said its revamped Premier account would pay 3.1% on balances up to ?5,000 and 5% on balances above ?5,000. Paying this much interest on a current account highlights how bad some savings institutions can be.

On the high street, for example, ?1,000 could be earning as little as 0.2% gross (before tax is deducted) or just ?2 a year in Abbey National's Instant Saver 3 account; 0.5% or ?5 a year in Lloyds TSB's Flexible Savings; 0.6% or ?6 a year in the Halifax's Liquid Gold; 1% or ?10 a year in NatWest's First Reserve; 1.1% or ?11 a year in Barclays' Instant Savings; and 1.8% or ?18 a year in HSBC's Instant Access Savings account.

If you are one of the hard core of savers who like the security of having a passbook and carrying out transactions at the counter, your options for switching to a better paying account are limited.

Such branch-based accounts - where you have to physically visit a branch - generally pay much lower rates than those operated by post, phone and the internet where customers effectively do their own banking.

This, say the institutions, is because of the associated overheads involved with a branch, such as staff costs. The Halifax, for example, says that its passbook-based Liquid Gold account is its most expensive to run because it is purely branch-based and its customers have the highest volume of transactions of any account in the bank's range.

A spokesman says: "We've been trying to move people out of this account for years, writing regularly to tell them they could get a better rate of interest by moving to a different account. So the number of Liquid Gold customers has been shrinking dramatically. But there is still a core who won't shift and we can only conclude they are not rate driven."

The Banking Code says banks and societies should ensure that savers who have "superseded" accounts - those which are obsolete or no longer actively promoted - are not stuck with lower interest rates than those on similar accounts in the range.

Nevertheless, if you've had money sitting for a long time in one account, it's worth double-checking whether newer accounts from your existing savings institution are paying better rates.

Savers who are prepared to forgo a passbook and use cash machines can do much better. ?1,000 could be earning as much as 4% or ?40 a year if you switched to the best-paying, branch-based instant-access account, which is Alliance and Leices ter's EasySaver which charges ?1 for a counter-based transaction. Other branch-based instance access accounts paying good rates are The Yorkshire Building Society's Access Saver at 3.75% with one withdrawal permitted per month; Bristol & West's Easy Life Instant at 3.5% with only six withdrawals allowed a year and a minimum transaction of ?100 and Tesco Savings cash card account at 3.35%.

If you are willing to go a step further, and go for a non-branch based account, your ?1,000 could be earning 4.7% or ?47 a year in Coventry Building Society's PostSave Statement, a no-notice account operated by post, or 4.65%, including 0.5% bonus for six months, in Scottish Widows Bank Instant Transfer account which is operated by post and phone where there is a minimum withdrawal of ?100. Even higher rates are on offer on no notice accounts if you are confident to step into the realms of technology. Intelligent Finance's Direct Access account, operated by phone and internet with all transactions having to be made via another bank account, is paying 4.76% (?47.6 a year) on ?1,000.

Rates on some top paying internet-only accounts pay even more, though it's important to note that some rates include temporary, introductory bonuses.

For example, on ?1 plus, Abbey National's eSaver is paying 5.35% including a 0.9% bonus for six months; Northern Rock's Tracker Online is paying 5.15% including a 0.25% bonus for six months; and both the Halifax's Web Saver and Nationwide Building Society's e-Savings are paying 5%.

You can also get better rates, in some instances, if you opt for a "notice" account where you have to give typically 30, 60 or 90 days notice if you want to withdraw money. You lose interest for the relevant period if you withdraw money quickly without the required notice.

The best paying notice account on ?1,000 at present, according to Moneyfacts, is Scarborough Building Society's postal 60-day Bonus Bond 18 paying 5.2%, including 1.45% bonus for six months.

Where to find out more

For a more extensive list of savings rates you could look at Moneyfacts, a monthly publication providing financial data. Most public reference libraries hold copies or you can buy a one-off sample copy (price ?7.50) by calling 01603 476100. You can also find "best buy" tables for different types of savings accounts on the Moneyfacts website at www.moneyfacts.co.uk.

Visit www.fsa.gov.uk/consumer, the website of City watchdog the financial services authority which includes useful tips on what to consider when comparing accounts.