Your best bets for instant access savings

BankWith inflation edging up again, it's even more important that you get a table-topping instant access account.

Inflation has risen again this month – up from 3.4% to 3.5% - and that means that even fewer savings accounts are offering a return that matches or beats inflation. This is especially true if you want an instant access account.

In fact, there are only two instant access accounts that either beat or match inflation. The inflation beater is the Nationwide BS Flexclusive ISA which pays 4.25% and the minimum deposit is only £1. However, you have to have a Nationwide current account to qualify for this ISA.

If you're not a Nationwide customer, there's only one instant access account available that keeps up with rising prices - Cheshire Building Society's Direct Cash ISA (Issue 2). It's paying 3.5% in interest which, of course, is equal to inflation.

The interest rate includes a 2.5% bonus until 31 October 2013, which means you're guaranteed to receive at least 2.5% for the next 18 months. As the account is a Cash ISA, you won't have to pay any tax on the interest either.

This year's Cash ISA allowance is £5,640, so savers with a modest nest egg could put all their cash into the Cheshire account and know they could access it at any point without notice.

However, richer folk may prefer to use their allowance for Cash ISAs for higher-paying accounts that require notice for withdrawals. Or they might want to put all their ISA money into Stocks and Shares ISAs.

That's fair enough, but they should still have some instant access cash and that will have to go into a conventional savings account with no tax-free ISA wrapper.

Conventional savings accounts
So which are the best conventional instant access accounts?

Well, the highest-paying account is the Nationwide MySave Online Plus which pays 3.17% in interest. Only trouble is, you need to have a minimum deposit of £25,000 to get that rate, so it's not feasible for most of us.

Next up is the Coventry Building Society's Online Saver 2 account which pays 3.15%. This includes a 1.15% bonus which will last for a year, and the minimum deposit is a nice and low £1. The only drawback is that you can only make four penalty-free withdrawals each year, so you could argue that it's not a true instant access account.

So you may prefer the ING Direct Savings Account as you can make as many withdrawals as you like. At 3.1%, the rate is slightly lower than Coventry's account, but the bonus is higher at 2.56%. That means you have a higher guaranteed rate with ING than with Coventry.

Just remember that none of these accounts will enable you to keep up with inflation – especially once you've taken tax into account.

If you're a basic rate taxpayer and you put your money into the ING Direct savings account, you'll only get a 2.48% return after tax. If you're a 40% taxpayer, you'll only get a 1.86% return.

Or to put it another way, if you're a basic rate taxpayer and you want a post-tax-return that matches inflation, you'll need to find a savings account that pays 4.38% in interest. And if you're a 40% taxpayer, you'll need to find an account that pays 5.83%!

It's pretty much impossible to get a 5.83% return from a savings account at the moment. If you need that high a rate, you have two options:
- Check out the social lending sites such as Zopa and Ratesetter where you could potentially earn 6% or more. Read more here.
- Save via a regular savings account. First direct's Regular Saver account pays 8%, but you have to pay in your money month-by-month, and the maximum monthly deposit is £300.

This doesn't make sense if you have a lump sum to play with.

However, if you're a basic rate taxpayer, you can beat 4.38% with a five-year fixed rate bond.

For example, AA's 5-year fixed rate savings account is paying 4.6% interest. That rate won't change at all during the term but if you want to withdraw early, you'll suffer.

So that's a round-up of the top instant access savings accounts plus a few others. Let's just hope that inflation reverses direction next month and starts to fall again. Lower inflation is great news for savers!

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