Published: 01/04/2009

Savings rates may have taken a hammering recently, but there are some simple steps you can take to ensure you get the best return on your hard earned cash.

With base rate at a record low of 0.5% many savings accounts are now offering a rate close to zero.

However, don't despair there are still ways to bring your savings return back up to a more rewarding level. Here are just a few ideas to get you started:

1. Current accounts that pay interest on credit balances

Interest bearing current accounts can offer a good rate, but just be aware that most impose a limit on which your savings are eligible for interest; this is typically about £2,500.

Alliance & Leicester's Premier 21 account offers in-credit interest of 5% on the fir Premier Direct current account offers 5% on the first £2,500.

The 'credit option' current account from Abbey pays 5% on the first £2,500 for the first 12 months. Also, Alliance & Leicester and First Direct will pay you £100 if you transfer your account to them (and First Direct offers to pay another £100 if you are unhappy with the account and wish to leave after a year).

Halifax has launched a new reward saver account offering you a net payment of £5 per month on your current account regardless of the balance as long as £1,000 is paid in each month. On £1,000, this equates to a savings rate of 7.5%, so well worth a look.

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2. Regular saver accounts

There are some great deals among 'regular saver' accounts at the moment that could see you earn the best savings rates on the market. The top rate at the moment comes from the Barclays Monthly Saver which pays a whopping 6% fixed for 12 months. The Abbey fixed monthly Saver and Scottish Building Society Regular Savings account both pay a very creditable 4%.

Just bear in mind that you must make a payment into the account every month, usually between £25 and £250 per month, but they are a great option if you're looking to build your first savings pot.

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3. Zopa

The days of earning 7% from UK banks and building societies are long gone. The closest you are likely to get to this now is via online lending website Zopa  The site is currently offering amazing savings rates of over 9.1%.  

Although this is considered a lending site, it is one where members of the public lend money to one another, so the lender receives the loan rate, minus charges, as an effective savings rate.

As the loan rates on the site range from 8.2% to 11.3%, depending on the quality of the borrower's credit file, the average rate paid to lenders is 9.1% after charges of approximately 1%.

With Zopa  there is no savings protection that you would normally receive via the Financial Services Compensation Scheme. However, your risks are not tied to one borrower because the money you lend is spread over many individuals, so the chances of losing all your money are very slim. Zopa  operates a rigorous credit score process and to date has seen very low default rates, but your return is not guaranteed so you need to bear this in mind.

4. Consider an offset mortgage 

This is a great way of saving money, particular in the current environment when savings rates have been decimated but mortgage rates remain comparatively high.

Offset mortgages work by offsetting your savings against your outstanding mortgage, which means that you only have to pay interest on the net balance. For example, if you have a £160,000 mortgage and £50,000 savings, then in return for not receiving interest on the savings you will only pay interest on £110,000 of your mortgage. 

Your savings may have only been earning a rate of 1%, but you may be paying 5% on your mortgage borrowing. While you will lose the 1% return you would have got on your savings, you will gain substantially more than this by not paying 5% interest on that £50,000 of your mortgage.

This will either reduce monthly payments, or you can keep the same level of payments and clear your mortgage much earlier. Offsetting is also tax efficient as while you would pay tax on your savings income, there is no tax charged on the equivalent saving you are making on your mortgage.

The beauty of an offset mortgage arrangement is that your savings are still accessible if you need them, if you withdraw them then the level of your mortgage liable for interest will simply increase.

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5. Savings accounts with bonuses

Moneynet has traditionally avoided recommending savings accounts with bonuses as the interest usually falls to a poor rate after the bonus period comes to an end. However, current market conditions now mean these accounts can be useful as long as you make a note of the end date in your diary and switch your balance once the rate falls.

There are over 100 savings accounts offering introductory bonuses to choose from. Average introductory bonuses have been increasing over the past few years, as have the average term of these bonuses: the average bonus is now an impressive 0.91%, spread over almost nine months.

Many savers may think it is just instant and easy access accounts that carry a bonus. They are the majority, but there are also cash ISAs, and regular monthly savings accounts that do likewise.  

Check out the best savings accounts at moneynet today and ensure your money is working as hard as it can.

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