Best easy access savings for 2011

By DAN HYDE
Updated: 19:01 EST, 4 January 2011

Savers looking for a temporary home for their cash should opt for instant access accounts in 2011.

Sitting pretty: Sort out your finances for 2011 with an instant access savings account

That means they can take advantage of penalty-free withdrawals if they need to use their savings - or if a better rate comes along.

As it stands, the best rate available is provided by the Post Office at 2.9%.

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This account pays 2.32% to basic rate taxpayers and 1.74% to higher rate taxpayers on anything above £1.

Included in the headline 2.9% rate is a 1.25 percentage point bonus. This lasts for the first year.

At that point, savers will need to shift their cash or face a huge drop in income.

Post Office savings are now covered under the UK compensation scheme.

In the event of its licence-holder, Bank of Ireland, going bust (vaguely possible given the Irish economic turmoil), customers would receive up to £85,000 of their savings via the Financial Services Compensation Scheme from 1 January.

If savers wish to steer clear of Ireland altogether, Norwich & Peterborough Building Society offers a competitive 2.8% (2.24% after basic rate tax; 1.68% after higher rate tax) on its E-Saver 4 account. This includes a 1.6 percentage point bonus for a year.

But with N&P's continued existence as a separate building society threatened by severe regulator fines for mis-selling, some savers may feel uncomfortable.

In that case, Santander's eSaver pays 2.75% (2.2% after basic rate tax; 1.65% after higher rate tax). The Spanish bank has been mired by technical glitches in recent times, most recently sending the wrong bank statements to 35,000 of its customers.

But the bank, which has merged Abbey and A&L since arriving in the UK, says it is committed to improving its customer service after a torrid 2010.

Elsewhere, ING offers 2.7% (2.16% after basic and 1.62 after higher rate tax) and AA Savings offers 2.6% (2.08% after basic and 1.08% after higher rate tax).

All these accounts include some sort of bonus 'catch', where the rate drops severely after an introductory period. Savers should check the terms and conditions carefully before signing up.