How savers can beat the bank

If you are a saver, don't despair - although the rates on offer are not particularly attractive, you may be able to improve the returns you get by looking at the accounts on offer, perhaps switching to another provider or just thinking laterally.

The Portman Building Society - which used to position itself to attract small savers - abandoned this market last month by chopping its rates by up to 3.65 per cent. Its instant access savers now get 0.5 per cent on deposits under £1,000. With inflation of 3.1 per cent, this means that they are now effectively losing money. Portman says it will in future favour customers with larger balances - though this is not unusual in the market. Many high street names - including Alliance & Leicester, Bank of Scotland, Barclays, Bristol & West and the Halifax - are paying out well under 1 per cent a year to small savers.

So what can you do? Paying down your mortgage or other debts is a good alternative. For instance, £1,000 paid off a NatWest 5.59 per cent variable rate mortgage saves you £55.90 in a year - but £1,000 invested in a Nat West instant access First Reserve account paying 0.55 per cent will produce just £5.50 a year (or £4.29 per cent after basic rate tax).

But if you do not have debts or you just want to have some cash on deposit, what else can you do? Cash spoke to some experts in the savings market who pointed to several interesting accounts. See the box (and also the Databank on page 6). Rates have been rising on some products in recent weeks - largely on the back of speculation that bank base rates will rise from their current 48-year low of 3.5 per cent. There is also growing competition from financial institutions who still want savings-rate business.

'There's a bit of a rate war going on in the fixed-rate sector,' says Sue Hannums of adviser Chase de Vere. 'You could really bag your self a good deal at the moment.'

Last week, the Halifax, Northern Rock and Alliance & Leicester all launched new fixed -rate products of at least 4 per cent. In the Guaranteed Income Bond market - only suitable for taxpayers since the interest is paid net of basic-rate tax - Colin Jackson of adviser Baronworth says: 'Rates have been creeping up over the last two to three weeks. Providers are all fighting for market share.'

Economists are divided as to what will happen to interest rates. The market appears to expect them to rise, but some commentators are still expecting a fall. Economist John Wriglesworth gives another commonly held view: 'Interest rates are going to stay roughly where they are for the next year.'

If you do start looking for a better rate, you also need to decide if you will constantly review your position and switch accounts or whether you will stay put once you find a better account. If you are a rate-chaser, you can look at the best buy tables and visit websites such as www.moneyfacts.co.uk. But if you are less active this way, you want an account that is consistently good rather than being top right now. Rates on headline-grabbing accounts are often allowed to fall once they have attracted in lots of business. Chase de Vere ranks the Halifax Web Saver account (now paying 4 per cent on amounts as small as £1) and West Bromwich's Direct Tracker Saver (3.5 per cent) as two of the most consistent over the last three years.