Money Insider: How to pick the right mix for your savings

With many high street savings accounts offering very low interest returns, it's no surprise that the savings habit is on the wane and that some people have all but given up saving.

But no matter how poor rates are, building a savings nest egg will always stand you in good stead and the value of having a financial cushion to fall back on should never be underestimated.

A frequent question I receive from readers goes along the lines of: "I have £X to save, where should I put it?"

Unfortunately it's rarely as straightforward as putting all your money into a single savings account.

While everyone will have different requirements regarding access to their cash and the length of time they are happy to tie it up for, my basic savings template is as follows.

In this example, let's look at someone with a sum of £10,000 to put away.

Firstly, it's important to keep some of your cash in an easy access account for day-to-day needs and emergencies, somewhere that you can get your hands on it quickly if needed.

At the same time you should look to take advantage of your annual tax free savings allowance, so it may be that you initially keep your emergency/rainy-day fund in an instant access Isa and kill two birds with one stone.

The AA Internet Access Isa, paying 3.35 per cent, or Santander Flexible ISA at 3.3 per cent free of tax are worth considering as a home for the first £5,000 of your savings, giving you immediate penalty-free access when required.

The next step for the remainder of your savings is to look longer term with fixed rate accounts – more often referred to as bonds. Because you don't have access to your cash for the term of the bond (anything from six months to five years) the trade off is that you receive higher rate of interest than you'd get with an easy access savings account.

However while you don't have access to your capital, many bonds will give you an option to receive the interest on a monthly basis if that's what you prefer.

Once again you're faced with more choices and decisions to make. Interest rates on fixed rate bonds have picked up slightly in the last few months, however the biggest dilemma is often how long to invest your money for.

The temptation is to opt for the highest rate although this would result in you having no access to your money for a full five years. With base rate still at a record low of 0.5 per cent rates will start to rise again at some point, but we don't know is quite how soon and how quickly this will happen.

The rates on offer for two- or three-year bonds look quite attractive and although you can currently bag an extra 0.75 per cent for a five-year fix, that decision may come back to haunt you if rates were to rise by say 1 or 2 per cent in a couple of years from now.

So with the remaining £5,000 of your savings, if you're absolutely sure that won't need to use it for some time, you could divide it as follows:

* £2,000 with Aldermore for a one-year term at 3.55 per cent

* £2,000 with Kent Reliance BS for two years at 4 per cent

* £1,000 with Secure Trust Bank for three years at 4.3 per cent

By spreading your fixed-term savings, currently you can get a better overall return than by just putting it all in a bond for just 1 year.

This strategy also means that every year for the next three years you will have a savings bond maturing and the option to fix again, perhaps in a new fixed rate ISA, for a term that suits your circumstances at that time.

In the meantime, if you want to continue adding to your savings month by month, take a look at the latest regular savings account from Northern Rock. The account allows you to save up to £250 per month, gives you unlimited penalty free access to your cash and pays a table-topping 4 per cent gross fixed for 12 months.

A good move is to set up a standing order from your current account so that the payment to your savings account goes out the day after you get paid; that way you won't be tempted to spend it.

This suggested savings portfolio won't suit everyone as it will depend on your tax status, the amount you have to save and access you require to your cash, but it's a reasonable base from which to start.

Andrew Hagger is an analyst at Moneynet.co.uk