Searching for decent savings rates

One of the more highlighted features of the financial crisis is that savings rates have plummeted on savings accounts. Anyone who has diligently saved over the past few years now faces being punished by existing low interest rates for savers. However, now that the threat of financial collapse is receding, savers are reportedly worrying less about how safe their money is, as much as getting decent returns on savings. This is especially important because the volume of savings in the UK has actually gone up, even though many current accounts are paying little interest - with some even paying zero interest. However, there are still options for serious savers to get a decent rate of return on savings.

Firstly, there are still a number of UK accounts which will provide a return of around 4-5%, as recently highlighted in the Telegraph, plus ThisIsMoney lists a number of internet-based savings accounts which offer better savings returns. The problem is, many of these set limits in place for issues such as missed payments or withdrawal frequency, offer decent interest only for a limited period, or else have limited bonuses in place to boost the savings rate. The disappointment is compounded by the fact that building societies used to be more competitive on savings rates, but at present they seem more focused on longer-term savings such as cash ISA savings accounts and eBonds.

The second option is to go offshore - which may raise jitters for some after the crash of Icelandic banks at the end of last year. However, offshore accounts are still generally offering better rates than high street banks, even where the bank owns the offshore savings company. This is actually a key point, because in the case of UK-owned offshore banks at least, the savings are guaranteed by the parent bank. In other words, you're only likely to lose your money if the parent bank goes bust, but as we've seen with RBS and HBOS, any large UK bank will be propped up by the government.

There are a number of interesting comparisons worth checking up if considering going offshore - MoneyFacts and Money.co.uk both offer comparison charts. Unfortunately, the best rates being offered again seem to be bonds - in other words, locking up your savings for a specified number of years. At present an offshore bank account may offer a better savings rate than high street banks, but are still not as competitive as fixed term savings plans. Additionally, do be careful of risk - I noticed that a number of building societies offering particularly good rates, but do be aware that many of these had their ratings downgraded by Moodys. In the event of these building societies or banks going bust, or being nationalised, you may find yourself experiencing a lot of worry as to whether your money is protected or not.

Overall, the picture for savings remains pretty muted as you'd expect, but there are options available for improving the rate of return. The problem is that it mostly involves locking up savings for a fixed term of up to five years, which is not something savers really should have to consider. Additionally, despite the UK government's presence in the UK banking market via majority stakes in RBS and Lloyds Banking Group, ownership of Northern Rock and Bradford and Bingley, they seem more interested in seeing the banks recapitalise, than provide any kind of real service to consumers. The result is that the tax payer hasn't simply paid to rescue these banks, we're also paying to rebuild them.