Shop around to find the best account

One way of saving tax on your interest is to put your money into a Tessa

Investment for most of us does not mean agonising over whether to transfer pounds 20,000 of our portfolio from Europe to the Far East but putting a few quid away in the bank or building society once a month.

But even with these modest sums, the choice of where to put your money can make a real difference to the return you get. What tax band you are in can also be important - the more tax you pay the more you should seek out tax-free boltholes such as Tessas or National Savings Certificates.

All the banks and building societies offer a range of tiered accounts. The general rule is that the more of your money they hold, and the longer you are prepared to leave that money untouched, the higher the rate of interest you will get. Even if you have as little as pounds 100 to put away, and want to be able to get your hands on your money at any time, the gross interest available varies from 0.3 per cent with Abbey National's Instant Saver Account to as high as 4 per cent with Bank of Scotland's Banking Direct Investment Account.

The building societies offer a range of 30-day, 60-day, and 90-day accounts that pay a higher rate of interest providing you give the specified period of notice before withdrawing funds. For a free list of best bank and building society accounts call MoneyFacts on 01692 500677.

If you are less than satisfied with the return you are getting on your savings account, point this out to your branch manager and threaten to take your account elsewhere. You may discover that your bank or building society has set up a more competitive account since you first became a depositor.

While shopping around do not forget to consider the postal accounts offered by many building societies. Because they are administered centrally rather than carrying the overheads of a branch network, they may offer a better return.

Bank and building society accounts quote their interest rates gross of tax but deduct basic rate tax (25 per cent) before handing the money over to you. If you are a non-taxpayer, you will need to fill in a form, IR85, available from your branch or direct from the Inland Revenue, to ensure your interest is paid tax-free. The completed form goes back to your bank.

Another way of saving tax on your interest is to put money into a Tessa, or Tax-Exempt Special Savings Account. These accounts offer tax-free interest providing you leave your capital untouched for five years. You can invest a maximum of pounds 9,000 over the Tessa's five-year term, and many will let you do this by saving pounds 150 a month during the Tessa's five-year life. While the Tessa is running you can withdraw a sum equivalent to the interest, net of tax, which you would have earned up to that point. Taking out more will bring the plan to an end and will mean you face paying tax on the interest.

The Government's tax-free Save As You Earn account, which allowed you to save up to pounds 20 a month for a tax-free return of up to 8.62 per cent after seven years, was withdrawn in last year's Budget, but some building societies, such as the Bradford & Bingley, offer their own version. B&B's Monthly Saver Account requires that you save between pounds 10 and pounds 100 a month by standing order, and pays a gross return of 7.3 per cent, providing you keep the plan running for at least one year. If you stop the plan before 12 months is up, however, you will get only 3.3 per cent interest (gross). This plan is not free of tax.

National Savings offers an account that pays the first pounds 70 a year of interest tax-free, or the first pounds 140 on joint accounts.