Money: Investing for income - New accounts seek instant hit

  • @simonnread
HISTORICALLY, building society returns are poorer than those achieved through the stock market, writes Simon Read. But all investors should have some money in simple savings accounts, first, to provide funds they can get at quickly in case of emergency and, second, because they're safer than shares.

You will need to decide for how long you're prepared to lock your money away with savings accounts. In general, the longer the notice period the better the rate you should be able to find. Recently, however, a number of high-paying instant access accounts have been launched. Leading the way is the Direct Savings account from Safeway, which is paying 7.4 per cent gross on savings of as little as pounds 2,500. Close behind is the Halifax's Premium Savings Direct which pays 7.3 per cent gross, although it requires a minimum balance of pounds 10,000, and Standard Life's Direct Access, offering 6.9 per cent gross on pounds 1,000.

You can also get good interest rates from several postally operated accounts that require no notice. For example, Abbey National's Bonus Postal pays 7.19 per cent gross and a similar rate is available from Legal & General Bank.

Many savings accounts have tiered rates of interest, so the more you invest the higher the rate you will generally get. For the best rates you may also need a high starting balance. For example, to open an Alliance & Leicester First Class Instant account and get interest of 7.5 per cent gross, you will need pounds 10,000.

There is a range of savings accounts which pay a monthly or quarterly income if you want to take the income out rather than leaving it to earn interest on the interest. Some of these, which also have notice periods, are Bristol & West's Postal 30, paying 7.53 per cent gross on balances of pounds 10,000; Chelsea Building Society's POST-tel Option 40 account, which pays 7.3 per cent gross on pounds 5,000; and the Legal & General Bank's 60 Direct account, which pays 7.4 per cent.