Best savings accounts

To beat inflation, basic-rate taxpayers now need to earn at least 4 per cent on their savings to stop the value of their cash being eroded. For higher-rate taxpayers, it’s even worse: savings accounts need to pay out 5.33 per cent to combat the double whammy of tax and inflation.

For basic-rate payers there are around 50 products out there offering these rates, but the deals tend to require savers to either lock up cash for a longer investment period or accept high risk - or both.

If you go for the first deal on offer at the average High Street bank, you’re likely to be short-changed. The average instant access savings rate has been 0.73 per cent for the past three months. Even the top-paying instant access account is a paltry 2.65 per cent - from West Bromwich Building Society, and you need to invest a minimum £1000.

Darren Cook, of financial number crunchers Moneyfacts.co.uk, heaps on the bad news. “Savings rates are continuing to fall,” he says.

“The average one-year fixed bond rate has fallen from 2.72 per cent in May to 2.62 per cent in July and the average five-year fixed bond rate has fallen from 4.35 per cent to 4.12 per cent for the same period.”

If you reckon Bank of England interest rates will stay low for a while, it’s a good idea to fix now. The top-paying rate is ICICI Bank UK, which offers 4.75 per cent if you’re willing to lock away cash for five years. Northern Rock pays out 4.05 per cent for a three-year fix. Both are covered by the Government’s £50,000 savings guarantee.

Remember to always use your £5,100 annual cash ISA allowance first, as this is tax-free. Santander offers interest of 3.2 per cent on its cash ISA, but only to existing Santander or Alliance & Leicester bank account customers. Cheltenham & Gloucester offers the next top rate, at 2.7 per cent.