You could do a lot better than simple deposit accounts
HAVING MONEY to save is one thing. Knowing what to do with it is quite another. People in Britain have been hoarding like squirrels since the beginning of the Nineties, saving over 11 percent of disposable income, according to official figures.

Ask yourself two questions before deciding where to invest. Do you want to take a risk on your capital, and do you want to be able to get your hands on the money quickly? As a general rule, the more risk you are prepared to take and the longer you can tie your money up, the higher your return should be.

"A first step out of building society accounts can be guaranteed growth or income bonds," says Bryan Fisher, independent financial adviser at Berkeley Financial Planning, in Coventry.

Several companies offer guaranteed growth or income bonds. With GE Financial Assurance's guaranteed income bonds, pounds 5,000 invested now for five years would give you 6 per cent net interest in the first year, according to data provider MoneyFacts. The rate is fixed in advance but is different for each of the five years, with 5 per cent for the final year.

Some types of guaranteed bond offer the chance to benefit from growth in stockmarket investments but save you from the risk of losing the capital you originally invested should the value of shares fall.

Building societies, as well as life insurance companies, offer guaranteed equity bonds. Bristol & West is currently offering a Guaranteed Equity Bond, which requires an investment of at least pounds 500 for five years. At the end of the term, the bond pays 100 per cent of the average growth in the FTSE 100, S&P 500 and Nikkei 225, or return of the original investment.

If you are prepared to risk your capital in the pursuit of higher returns, unit trusts or unit trust PEPs could be a simple next step, says Janice Thomson of Chelsea Financial Services.

A unit trust is just a fund or collection of shares of various companies. You buy part, or a unit, of that fund and benefit from a corresponding proportion of its growth. This means for a relatively small investment, your risk is spread across a large number of shares. Unit trust investments, up to a certain level, can be held as a PEP.

"The big advantage of a PEP, is that it is tax-free," says Mrs Thomson. You can save as little as pounds 500, or if you prefer a regular savings plan, there are providers who accept just pounds 20 a month.

For novice investors, Mrs Thomson recommends corporate bond PEPs. Corporate bonds, like shares, are a type of security issued by companies. But corporate bonds are much safer because in the event of bankruptcy bondholders are repaid before shareholders.

Aberdeen Prolific's Fixed Interest fund invests in corporate bonds. Over the last five years, a pounds 1,000 investment in this fund would have grown to pounds 1,756.39, according to MoneyFacts.

However attractive returns may be elsewhere, if you do decide to play it safe and stick with a deposit account, shop around as rates vary widely.

Some of the best savings accounts recently have been offered by supermarket chains. Sainsbury's Bank pays 6.75 per cent gross annual interest on its instant access savings account, while Safeway pays 4 per cent on balances of up to pounds 500, but 7.4 per cent on balances of pounds 2,500. Standard Life Bank has an account accessed by telephone, called Direct Access which pays 7.35 percent interest on balances from pounds 1.

Berkeley Financial Planning: 0800 214074; GE Financial Assurance: 0181 380 3388; Sainsbury's Bank: 0500 405060; Safeway: 0800 995995; Standard Life Bank: 0345 555657; Chelsea Financial Services: 0171 351 6022