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Loans & Credit

Bumper rates are available, but with strings attached

Interest of up to 10 per cent is tempting, but don't forget to check the fine print.

Interest rates were left on hold at a historic low of 0.5 per cent last week, and some savers are receiving nothing for the cash piles they have worked hard to build up. So any account that offers above the norm is bound to attract savers' attention.

It is possible, even in these dark days, for savers to find accounts that pay 10 per cent. But beware these regular savings accounts because they come with strings attached which, in the long run, could mean that savers don't get such a good deal. Regular saver accounts allow you to pay in a set amount each month, mostly between £10 and £250, which you generally cannot touch until the end of the term, usually 12 months.

If you do make a withdrawal, you sacrifice the interest earned either in the month of withdrawal or for the whole term of the account. In return for agreeing to these strict terms, you will get quite a high rate of interest.

The top paying is the HSBC regular saver which offers 10 per cent. It is used as an incentive to get people to sign up for their HSBC Plus, Premier and Passport account, all of which cost a minimum of £12.95 per month. Account holders do receive freebies, such as travel insurance and breakdown cover. However, if you are not going to take advantage of all the added extras, then they are rarely worth getting just for the interest rate.

David Black from financial information service Defaqto says, "The issue with added value current accounts is that they are generally sold on the basis of the incentives offered. At the top end there are some quite good things, but you have to look at whether you actually want the incentives and whether they are good enough quality for what you need."

Other products that are linked to high regular saver rates are free. Alliance & Leicester has relaunched its Premier Regular Saver this week offering 7 per cent on monthly deposits between £10 and £250. To get this rate you have to switch to a Premier Current Account which is free and comes with extra goodies such as European multi-trip travel insurance and a free overdraft facility.

Steve Gracey, a spokesman for Alliance & Leicester, says, "We are challenging the big-name banks whose current accounts offer quite poor value. By coming up with offers like these we are hoping that we can focus people on what are good-value products and which are bad value." However, the Alliance & Leicester rate comes with its own restrictions. Firstly, the regular saver account is available only to new premier current account customers who pay in a minimum of £500 per month.

However, new customers cannot get both the £100 cash incentive A&L is offering until the end of May to switch and the regular saver account. You also cannot change the monthly amount you decide to pay into the regular saver. Remember, failure to meet a payment in any month will result in the loss of any interest earned.

First Direct offers a similar savings and current account combination. Its regular saver ISA also pays 7 per cent and is available only to First current account holders who must pay at least £1,500 each month into their accounts. The First current account is free but does not pay any interest and comes with no freebies. However, the regular saver is tax free which offers a considerable incentive.

The bottom line, though, seems to be that if you are in search of high interest rates, then signing up for other products to get a high rate regular saver is not the answer. As Michelle Slade from financial information service Moneyfacts.co.uk says: "To move to another current account simply for a tie-in savings account may not leave you in such a good position. You need to look at the whole package including any restrictions, and see if the account suits your individual situation."

If you already have a considerable balance saved, a good alternative is a fixed-rate bond. Market leading products are offering about 4 per cent for a one-year bond, lower than the top regular savers, but payable on your entire balance and not just a set amount per month. Alternatively, the best regular saver with no strings attached is from Barclays and pays 5.84 per cent.