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Best Savings Rate

  At the time of writing the best headline savings rate available to the public comes from the AA.  They are offering 5% for a five-year bond.  They are followed by a five-year cash ISA from Northern Rock paying 4.5%.  But that's not the whole story if you're a tax payer.......

The government run National Savings and Investments are offering an interest rate equivalent to the Retail Price Index plus 0.5% free of tax.

Based on current inflation at some 5.2%, this means an equivalent interest rate of 8.7% for a 40% tax payer, and no other savings scheme comes anywhere near that rate.  Even a basic rate tax payer would need a savings account paying 6.5%.

There are restrictions of course;  that wonderful phrase, "terms and conditions apply."  You can't invest more than £15,000 and you need to leave the money in the account for at least a year.  If you want to make a withdrawal it has to be for the full amount - you can't take out a smaller amount to meet some unforeseen emergency.  Nevertheless, it does mean that you can switch your cash should a better deal turn up after the first year.  The interest rate is guaranteed for five years, but you are not locked in for that period.

It is such a good deal that it's unlikely to be available for long.  The government don't want to corner the savings market, so if you want the best interest rate on your savings you probably need to act quickly.

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