Searching for the best rate

By THIS IS MONEY
Updated: 19:00 EST, 12 July 1999

A deposit account should play a vital part in a saver's strategy as a source of emergency cash.

Experts suggest that at least a month's spending should be set aside in a deposit account before money is invested elsewhere for income.

Unfortunately, most instant-access accounts now pay less than the rate of inflation, so money saved will dwindle in purchasing power.

The worst offenders are High Street banks. Deposit accounts at most of them pay less than 1% before tax, even on high balances.

But it is still possible to obtain inflation-beating returns from other deposit accounts.

Laura Hugall of Sale, near Manchester, and her business partner Deborah Giles-Burness are looking for easy-access high-interest savings accounts.

The two former NHS pharmacists set up a business, Pharmaceutical Networks, in 1998 to offer training and advice to GPs, drugs companies and pharmacists.

Laura, 32, says: 'We travel all over the UK to run seminars on changes to the health service and on managing drugs budgets as well as writing reports for different companies, so it doesn't leave much time to worry about our own money.

'But I know there is a huge difference between the interest ordinary bank savings accounts pay and the rates from newer companies.'

Many of the best-paying accounts come from banking offshoots of insurance companies. Supermarkets, which began selling savings accounts four years ago, also offer good returns.

Deborah, 36, says: 'I'm happy to run my account over the phone or the Internet, which seems to be the only way to get the best rates now.'

Standard Life, Virgin Direct, Lombard Direct and Prudential's Egg have all topped best-buy tables this year, though Egg now opens accounts only to people who use the Internet.

With these new-style savings accounts, customers contact the company, give details of a current account and set up a direct debit arrangement to the new savings account. When savers want to pay into a savings account they contact the company and ask it to debit the amount from their current account. To make a withdrawal, they ring and ask for a payment into their current account.

These telephone/direct debit arrangements have superseded the postal savings accounts run by many building societies. Postal accounts still pay more than most branch-based accounts, but beat phone or Internet alternatives only on high balances.

Those who want to draw regular income from a deposit account could use a monthly-interest savings account. But if all the interest is withdrawn every month, the capital saved will not grow and its value will be eroded by inflation.

Of the traditional savings players, Yorkshire building society offers one of the best monthly interest accounts at present, paying 5.45% gross on £100 or more with some restrictions.

Egg pays 5.37% on its monthly interest account.