Money: Investing for income - Stay ahead in the dash for cash

Thanks to volatile stock markets and intense competition among financial institutions, this should be a golden age for the humble savings

A COMBINATION of turbulent stock markets and gently rising UK interest rates is breathing new life into the humble deposit account. Once an also- ran, left behind by the racier stock market-linked investments, this traditional refuge for the private investor is back in focus as the battle for depositors' cash hots up.

Last week two new savings accounts were unveiled, by the Halifax and the supermarket group Safeway. Together with new accounts from other "tele-banks" and supermarket groups, savers are being spoilt for choice.

However, before rushing off to open a new account, you should check on the small and not-so-small print attached to these products.

Many savings accounts may look very similar. But there are differences.

In particular, they can be differentiated by the amount of money that has to be deposited before a particular headline rate of interest can be earned; the number of withdrawals that can be made in any year without loss of interest; or the notice period needed before any penalty-free withdrawal can take place.

So while the Halifax offer of a 7.85 per cent gross rate on its new Premium Savings Direct account looks attractive, it is only available to those with pounds 40,000 to deposit through its new telephone service. Sums between pounds 10,000 and pounds 40,000 attract the slightly lower 7.3 per cent rate.

Among the other new products on offer, Standard Life's 7.3 per cent is only available on lump sums of pounds 50,000 or more. Savers with only pounds 1 to invest will earn just 6.7 per cent.

One of the best offers for those of modest means comes from the Woolwich's new Card Saver Account, which pays 7.0 per cent to savers who can put away the odd pounds 50 - though you are only allowed six withdrawals a quarter. More than that and you will be charged 50p a withdrawal.

Among the most accessible accounts with reasonable rates of interest, the supermarket groups Tesco and Sainsbury's are both offering 6.5 per cent on as little as pounds 1.

Limiting the number of withdrawals is one of the easiest ways for banks and building societies to tie up depositors' money but still be able to put an "instant" name tag on an account. Another ploy used by the deposit takers is to operate an "instant" account by post. As overheads and administrative costs are less, rates can be very good, but in practice it may take over a week to get your hands on the cash.

Savers should also remember that banks and building societies benefit greatly from inertia. Today's best rates may be derisory tomorrow, but the chances are that most customers won't want the hassle of moving their money.

For such people, opening a "tracker" account is an option. With these, interest rates are directly linked to base rate movements. Skipton building society offers a Base Rate Tracker account which changes 14 days after any base rate change and currently pays 7.25 per cent on minimum balances of pounds 5,000. The obvious catch is that savers only have access to their money for the 14 days after a rate change.

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