What is the best home for your hard-earned savings?

Read advice from the experts at MoneySuperMarket.com

Updated: 
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Interest rates in recent years have been very low, making it a struggle for savers to find returns that will keep up with inflation.

But do not despair! You don't have to restrict yourself just to plain old savings accounts, as there are plenty of other options offering competitive interest rates:

Individual savings accounts (ISA)

ISAs should be your first choice as returns are tax-free.

In the 2015/2016 tax year, you can save up to £15,240 into a cash ISA, or, if you're prepared to accept a level of risk, you can save some of this allowance into stocks and shares too.

When choosing an ISA, check how easily you can access your money. Many cash ISAs are easy access accounts, so you can make withdrawals whenever you want, but some are fixed rate accounts, and don't allow you to take your money out until the fixed term ends.

You can transfer your ISA savings to an alternative ISA if you find higher returns elsewhere, but always do this by requesting a transfer form from your new provider. If you simply shut down your account to withdraw the money, your savings will lose their tax-free status.

Easy access savings accounts

If you need to be able to get your hands on your cash quickly, and you've already used your cash ISA allowance this year, you might want to consider an easy access account. As the name suggests, this type of account allows you to make withdrawals whenever you want.

Make sure you shop around to find the best available rate (which you can easily do with MoneySuperMarket), and be prepared to switch providers if your account no longer looks competitive.

Fixed rate bonds

If you know you aren't going to need to make withdrawals from your savings account, then a fixed rate bond could be a good option.

These accounts typically pay higher rates of interest than easy access accounts, but you must be prepared to leave your money untouched during the fixed rate period.

If you do need to take money out during the fixed term, you'll usually have to forfeit some interest.

Peer-to-peer lending

Some of the best savings returns you can find are from peer-to-peer lending websites. Peer-to-peer lending works by connecting you with people who need to borrow money.

You loan them your savings for a set period of time, and in return they pay you higher rates than you can typically achieve from a bank or building society savings account.

You don't need big sums to invest – many peer-to-peer schemes accept as little as £10.

The downside, however, is that peer-to-peer lending is not covered by the Financial Services Compensation Scheme (FSCS), which will pay out in the event that your bank or building society goes bust.

However, peer-to-peer schemes usually offer their own 'provision funds' which will reimburse you if borrowers default on their loans to you.

Current accounts

Plenty of current accounts now pay returns which are much higher than those offered by easy access savings accounts.

However, these high rates are often only available on balances up to a certain limit, which makes a current account a good option for your first slice of savings.

Check the small print carefully to make sure you are eligible. Many current accounts require you to pay in a set amount each month to qualify, and you will usually need to set up a couple of direct debits from the account too.

Some current accounts also pay cashback on your everyday spending, which can give your overall returns an extra boost.

You can compare a range of current accounts with MoneySuperMarket.

Spread your savings

Whichever home or homes you choose for your savings, it makes sense to spread them between several different providers.

That's because the FSCS will only pay out up to £85,000 per person per institution in the event your savings provider goes bust. This limit falls to £75,000 per person per institution from January 1, 2016.