These savings rates are too good to spurn

With the headlines all screaming that the nation is drowning in £1 trillion of debt, it's easy to forget we are saving as well.

With the headlines all screaming that the nation is drowning in £1 trillion of debt, it's easy to forget we are saving as well.

Britons had more than £810bn stashed away in building societies, banks and cash individual savings accounts (ISAs) at the end of June, according to Bank of England figures. That's £74bn more than at the same time last year - a rise which includes interest earned as well as new cash we've managed to set aside.

Notably, however, we appear to be saving more on a regular basis, suggests David Elms of Independent Financial Adviser Promotion (IFAP). This is down to the increases in the Bank of England base rate since January, encouraging us to save given that we can now earn higher rates of return, he says.

IFAP's own ratio of savings to borrowings (excluding mortgage loans) reveals that between April and June, for every £1 saved, we borrowed 61p. This is 8p less than we borrowed to the pound during the same period in 2003.

Although IFAP is wary of heralding a savings "revival", new deals offer more competitive rates of return.

Both J Sainsbury and Abbey upped the ante last week, launching fixed-rate savings accounts paying 5.4 and 6.5 per cent interest respectively. You have to lock your money away for 12 months to qualify for the full rate but this shouldn't deter savers, says Ben Willis of independent financial adviser Chartwell. For tying your cash up when rates are high could be a sound move.

"One year is not a very long time, and there are many in the industry suggesting that interest rates have hit their peak," he says. "A lot of people are holding on to their money in cash and looking around at deposit accounts for deals."

With rates like these, there's really no excuse for accepting poor savings rates.

On no-notice accounts, the average rate of interest earned on a £5,000 sum is 3.08 per cent, says financial research firm Moneyfacts, which works out at £154 a year before tax. Yet, as our "best buy" tables show, you could earn a lot more. Switch the same sum to a table-topping account paying over 5 per cent and you get nearly £100 extra interest.

Always check for penalties before you move your savings, although it could be worth incurring, say, 30 days' loss of interest if if means your money works a lot harder.

Don't expect good deals on a plate from your bank though, says Rachel Thrussell of Moneyfacts: you'll have to shop around to hunt them down.