Make your savings work for you

So if you’ve got savings, making them work for you is even tougher than ever. Here are the 10 things you need to cover right now.

1. Even the best easy access account is currently offering only 2% AER

This sets the benchmark for everything else. But, remember, if the best is this bad, what’s yours offering? If you can’t answer that, check.

The top paying account is currently from Derbyshire Building Society (thederbyshire.co.uk), with unlimited no-notice withdrawals. This includes a 1.5% year-long introductory bonus, which effectively acts as a rate promise for that time. After that, ditch and switch.

Rates are currently dropping by the day, so for constantly updated info, see www.moneysavingexpert.com/topsavings

2. Earn 3% AER (plus cashback) in a current account

Bizarrely, for the best easy access savings, grab a Santander 123 (www.santander.co.uk/123) bank account. New and existing customers with £3,000-£20,000 get 3% on the whole amount.

There is a fee of £2 a month, though as it also pays a nice 1%-3% cashback on bills such as council tax, phones and energy, that should easily cover it. This leaves many making £10 a month or more on top.

3. Get 4% AER if you can put money away each month

Regular savings accounts offer hot rates, but only let you save a limited amount each month. To save a lump sum, drip-feed it from a top easy access account.

The top rates are often linked to bank accounts, so check yours. If not, the top deal open to all is Norwich & Peterborough's 4% AER fixed for 12 months (with a maximum deposit of £250 month). You must pay in every month, and not make more than one withdrawal in the year.

4. The best savings rates come from repaying debts and mortgages

Think about it. £1,000 credit card debt at 18% costs £180 a year, but the same in savings, after tax, earns £15 at best.

So pay off the debt with the savings and you're £165 up. Pay off credit cards even if you haven’t got an emergency fund, as if a real emergency (the roof caving in, not needing this season's shoes) came, you could simply borrow back on the card and be no worse off than when you started.

With mortgages, if their interest rate (eg, 5%) is higher than the after-tax rate on savings (eg, 1.5%), it makes sense to use the savings to overpay them. With rates so low, many are now in this category.

Yet... a) Check there are no penalties for overpaying. If there are, it's very likely not to be worth it. b) Keep enough cash to keep you afloat for three to six months, as unless you’ve an offset mortgage, you can’t borrow back on it once you’ve repaid it.

The benefit of this can be huge: overpaying £100 a month on a £100,000 mortgage at 4.5% saves £18,000 interest over a 25-year term. Work out your own scenario at www.moneysavingexpert.com/overpaycalc

5. Earn 8% interest lending money to others

This can work extremely well, earning some up to 15%. Your money's lent via special sites uk.zopa.com, fundingcircle.com (which lends to businesses) and ratesetter.com. They credit-check borrowers can afford to repay, and chase repayments if they fall behind. Many have earned decent returns, but unlike savings, they've got no Government protection.

This can be extremely lucrative. But it isn’t without risks, which you must understand before embarking on it. So please read my full peer-to-peer lending guide at www.moneysavingexpert.com/peer2peer to see if it's right for you.

6. Make the most of your tax-free cash ISA savings (get 2.5% AER)

A cash ISA is just a savings account you can put £5,640 a year in, where the interest's tax-free. If you've not got your 2012/13 cash ISA, there are only two months left.

The top easy-access deal is Cheshire BS's 2.5%. It also allows you to transfer in past years' cash ISAs – so you can boost them too. Check yours now, and transfer across if needed. This rate includes a 2% bonus for 18 months, effectively acting as a rate promise for that time, but you’ll want to transfer out afterwards.

If you can wait to access your cash, Coventry Building Society’s 60-Day Notice ISA pays 2.8% on balances from £1, guaranteed until December 2013, but it doesn't allow transfers.

7. Your kids can earn 6%

The branch-based Halifax Kids' Regular Saver pays a huge 6% AER fixed for a year (max £100/month) if you are prepared to lock cash away. It’s head and shoulders above all others for rate. Annoyingly, those in Scotland need to go to a Halifax branch to open it (though not after that) and there aren’t any north of the border. But if you’re tripping south, it's a not bad stop-off on the way.

8. Is it worth locking cash away to get 2.25%?

Normally, locking cash away without access gives a high fixed rate. Right now, the rates are horrid – though, of course, rates could keep plummeting – making these look good with hindsight.

Even so with rates this low, it's questionable whether fixes, especially longer ones, are worth it. Top payer over one year is currently Virgin Money with 2.25% AER.

9. Premium bonds for higher-rate taxpayers

I can’t believe I'm saying this, but if you’re a high-rate taxpayer, think Premium Bonds. I've never been a fan, and the current prize rate's just 1.5%. But, as it's tax-free, that's equivalent to 2.5% AER for higher-rate 40% taxpayers.

You'd still need luck to get it, but for high-rate taxpayers who've filled their ISA up, the chance of beating top savings isn't bad. To see your chances of winning, try www.moneysavingexpert.com/premiumbondcalculator

10. A few final important savings quickies

a) Unless I’ve noted it, all the accounts I’ve listed here have full £85,000 UK savings safety protection. If you've more, consider spreading across multiple accounts. b) To cut tax, if you're a couple, put savings in the lower taxpayer's name. c) If you've kids, as some of their accounts pay higher rates, saving in their name pays. But if they earn more than £100 a year interest from it, it's taxed at your rate.