The iceman cometh and savers swoon

It's been blown in on a blast of cold air but the battle of the banks for savers' money is heating up, with the launch by Iceland's Landsbanki of a no-notice account paying 5.2 per cent.

The provider - which also owns the Heritable Bank - is joining the fray with IceSave, an internet-only account that guarantees interest will exceed the Bank of England base rate (currently 4.75 per cent) by at least 0.25 percentage points until 1 October 2009.

From then on, the interest will be base rate or above until 1 October 2011 - the longest guarantee of its kind in the UK.

While the minimum balance is £250 - or the rate falls to 0.5 per cent - the maximum is £1m.

Landsbanki's arrival in the UK savings market follows months of intense competition between providers to get to the top of the "best buy" tables for easy, or instant, access accounts.

Until last month, Indian bank ICICI sat at the top with 5.15 per cent on its HiSave product. Then came Birmingham Midshires bank with a 5.2 per cent rate, although this includes a 0.65 percentage point bonus for 12 months.

It's boom time for savers, say industry specialists. "After a period of calm, the launch of an easy access account from another [relatively] unknown contender has sparked a rates war," says Stuart Glendinning from price-comparison service Moneysupermarket.com.

"It's great to see another entrant to the UK savings market, offering more choice and putting more pressure on those provid- ers offering a poor return."

The average instant access account pays only 2.86 per cent, according to research from Money-expert.com, another price- comparison service. After tax and inflation, many savers get a lot less.

IceSave's arrival has prompted an instant reaction, with Alliance & Leicester launching an easy access account at a rate of 5.38 per cent. But this deal, available over the phone and internet, demands a minimum investment of £5,000 and offers a maximum of £100,000. There is also a significant caveat: make a withdrawal and you won't be credited with any interest in that month on the whole balance.

This is one of a number of so-called instant access accounts that have withdrawal terms and conditions attached - so watch out for these when shopping around.

For any saver weighing up their instant access options, Sean Gardner of Moneyexpert.com says it may be worth waiting until next month, when the Bank of England could - as many predict - raise rates again.