Should you grab a fixed or variable savings deal?

As interest rates rise, we reveal how savers can cash in

ARE you in a savings account that pays just 0.05 pc interest a year? If so, it is time to move.

You can squeeze hundreds of pounds more annual interest from your nest-egg — without any risk.

And even if you haven’t built up a big savings pot, there are rich rewards for making your money work harder.

After nine years of record-low rates, things are looking up for Britain’s 44 million savers. Rates are finally on the rise, widening the gap between the best and worst payers.

Head for new banks — your money is no less safe than with older firms — or building societies, rather than traditional High Street banks.

It’s here where rates are getting better. The big banks are still paying savers a pittance.

Most people tend to open their first savings account with the bank that runs their current account, then just stay put.

Nearly £9 out of every £10 of cash savings is sitting in easy-access accounts. HSBC pays just 0.05 pc, Lloyds and Halifax pay as little as 0.2 pc and Santander 0.25 pc.

Newer banks pay as much as 1.3 pc — giving you an extra £125 a year on each £10,000. Anna Bowes, director at advice website Savings Champion, who regularly switches savings accounts, says: ‘Big banks don’t need to pay good rates to retain money. They rely on savers’ inertia and the fact they are well known. A switch should be straightforward.’

Kevin Mountford, chief executive of Raisin UK, which helps new banks raise money from savers, says: ‘Most people rely on the big banks. This is a mistake if you want a good rate of interest.’

Check your rate and move if its less than 1 pc. And when your fixed-rate deal ends, don’t simply stick with your current provider. You could raise your rate from 0.4 pc fixed for one year to 1.8 pc from new banks — £140 extra interest on £10,000.

Rachel Springall, from data monitors Moneyfacts, says: ‘You might expect any rise in base rate to be passed on in full automatically, but this no longer happens.’

Savers face a huge choice of more than 166 easy-access accounts. Ignore the top payers that limit you to a certain number of withdrawals if you want to dip into your money at any time. Some let you take out money only once a year, others three or six.

Unless you are prepared to move your money annually, also ignore those that pay a bonus for the first 12 months you are in the account, but then chop the rate sharply.

BUILD UP A FUND FOR A RAINY DAY

BEfoRE you do anything as a saver, you should pay off your most expensive debts. You pay higher rates on these than you can earn on your nest-egg.

Then, look to build up a rainy-day fund to cover emergencies with an easy-access account.

Virgin Money Regular Saver pays 2.25 pc on savings of between £1 and £250 a month.

If you plan to put away more, look for top payers such as RCI Bank freedom account (1.3 pc) or ford Money flexible Saver (1.22 pc).

Justin Modray, of independent advisers Candid financial Advice, says: ‘As a rule of thumb you need three to six months’ income in an easy-access account, just in case anything untoward happens.’

Your money is as safe with new banks as with the old timers.

Under the financial Services Compensation Scheme (fSCS), up to £85,000 at any one firm is safe in the event of it going bust. on joint accounts you get £170,000 protection. The limit covers banks and building societies registered in the UK, as well as Swedish bank Ikano.

With RCI you get €100,000 of cover (about £89,000) under the french Scheme. Ikano aligns its cover to the Swedish scheme, covering UK savers for £85,000.

With National Savings & Investments 100 pc of your money is guaranteed by the Government.

MAKE SAVING A HABIT FOR LIFE

oNCE you have a reasonable amount in your rainy-day fund, be clear of your aims. If you want to keep building up your savings, see what your current account offers.

for example, first Direct pays 5 pc on £25 to £300 a month. Ensure you move your pot to your better-paying easy-access account after your fixed rate account’s 12 months is up.

If you plan to buy a home, consider a cash Lifetime Isa with Skipton Building Society (0.75 pc) or a Help To Buy Isa (the top rate is 2.56 pc with Newcastle BS).

Both accounts offer a 25 pc bonus on your savings when you use the funds to buy your first home — but have different savings limits. With the Help To Buy Isa, savings are capped at £2,400 a year, or £12,000 in total. With the Lifetime Isa, you can

save up to £4,000 a year, or £128,000 in total, and still get a 25 pc bonus. The maximum bonus under the Help To Buy Isa scheme is £3,000, compared with £ 32,000 on the Lifetime Isa.

KEEP SWITCHING TO BEAT BANKS

OFTen providers raise rates for new savers, leaving loyal customers with poorer rates. you are happy to go online, switch your nest-egg to a top rate such as ford Money’s flexible Saver at 1.22 pc. It might not be the very top rate, but it will keep up with the general level of savings rates. Or french- owned RCI Bank pays a slightly higher 1.3 pc.

If you don’t fancy running your account online — or can’t because of a poor internet connection — head for your local building society or smaller banks with branches, such as Virgin Money or Kent Reliance, where you can earn at least 1 pc.

Smaller building societies that pay competitive rates include national Counties at 1.11 pc on its Branch Saver.

If you don’t live near a branch, some, including Virgin Money and Coventry BS — which pays consistently good, if not top rates — and nS&I ( Direct Saver at 0.95 pc) let you open an account over the phone.

And don’t forget your standard Isa allowance of £20,000 a year.

for the best deals, check out nationwide at 1.4 pc or 1.3 pc, depending on how long you have been a member of the society, or Virgin Money at 1.21 pc. Both are available online or in branches.

To switch your cash Isa, ask your new provider to arrange it for you — or you could end up losing the tax-free benefit on your interest.

FIXED RATES ARE WORTH A GAMBLE

If yOu have enough easy-access money, you can turn to a fixed-rate bond to earn more interest.

But only do this if you are sure you don’t need the money over the period.

Patrick Connolly, of advisers Chase de Vere, says: ‘you need to make sure the difference between a variable and fixed rate is wide enough to make it worthwhile and that you don’t need the money. We don’t know what will happen to interest rates, so tie your money up for a maximum of two years.’

The top easy- access rate is currently 1.3pc against a top oneyear fixed-rate of 1.8 pc, giving you an extra £50 on each £10,000.

That comes from new bank Masthaven, available online.

Or PCf Bank offers 1.74 pc for one year, available online or by post. Phone the bank (020 7222 2426) for an application form.

national Savings & Investments’s one-year Guaranteed Growth Bond is available by phone.

It’s not the top rate but it’s still much better than you will earn from big banks such as Lloyds’s 0.4 pc and Halifax’s 0.45 pc.

new fixed-rate deals can change at the drop of a hat — either up or down — but once you’re locked in, your return shouldn’t change for the duration of your term.

The question for many savers is will they miss out if interest rates rise?

This is unlikely, as to do so your easy-access rate would need to rise by more than one percentage point after six months — and no one is expecting that to happen.

Currently, experts think the Bank of england base rate will rise by 0.25 percentage points to 0.75 pc in May. But predicting interest rates is notoriously difficult.