Putting your savings to work

SAVINGS rates are spit-worthily low; but it could get even worse as the UK base rate doesn't look likely to rise till late 2015 and 'swap rates' - which influence fixed saving rates - have plummeted recently. Yet there are weapons in a saver's arsenal - most don't use them, it’s time to change that.

As an aside, before you start saving, do pay off any expensive debts, as they’re costing you more than saving will pay you. This is often true for mortgage too – read my full mse.me/mortgageoverpay guide to see if it’s worth it.

My savings fountain is designed to maximise your interest on every penny of your cash. It works because different types of savings have different rules on how much you can put in and when. Think of it like a champagne fountain - put your cash into the best-paying savings vehicle possible, then when that's full and overflowing, fill up the next best, and so on.

• The top tier... earn up to five per cent easy-access via bank account savings.

Some bank accounts' in-credit rates now smash easy access savings accounts and ISAs. They're done as a loss leader to entice new banking customers - yet if you're prepared to switch account, you gain. Aim to cover as much as possible at decent rates.

- Earn three per cent AER on £3,000-£20,000: With the santander.co.uk 123 account. There's a £2/mth fee, but this is usually more than covered as it also pays cashback on bills.

- Earn 4% AER on £4,000-£5,000: With the lloydsbank.com Club bank account.

- Earn 5% AER for a year on £2,500: With the nationwide.co.uk FlexDirect account.

- Earn 5% AER on up to £2,000: With the tsb.co.uk/ Classic Plus bank account.

For those who want to game it to open more than one, see my mse.me/savingsloophole.

• Next trickle into regular savings... save monthly to earn up to six per cent.

Regular savings accounts often pay high interest as it's only on a small amount for a short time. While the top rate's slightly more than bank accounts, because you need to put cash in each month, you'd need to trickle it across from your top savings account anyway - hence why it's second.

- Bank linked six per cent regular savings. If you’re a First Direct bank customer, it offers a linked regular savings account at six per cent AER fixed for a year - you need to put £25-£300 in per month and can vary that each month. The Lloyds current account has a similar linked account at four per cent.

- Anyone can earn 3.05 per cent. The leedsbuildingsociety.co.uk Regular Saver pays 3.05% AER variable if you pay in £50 to £250 every month for a year.

• Got more? Pour it into a cash ISA 2.Six per cent tax-free with access.

Cash ISAs are just savings accounts where the interest isn't taxed (so you keep all of it). Anyone over 16 in the UK can put up to £15,000 in an ISA each tax year (6 April - 5 April) and once in, it stays tax-free year after year.

With fixed-rate cash ISAs, unlike normal savings, you can access the cash within the term - though you'll lose some interest in penalties. Yet even if you withdraw early, these can still be winners.

- Top fixed-rate cash ISA: coventrybuildingsociety.co.uk pays 2.6% AER fixed for four years, but you can withdraw by closing the account early and the penalty is just 120 days' interest. So withdraw after one year and you'd get 1.75 per cent, after two years 2.18 per cent and after three years 2.32 per cent. This means as long as you keep cash in for ten months, you'd earn more than the best easy access deal anyway.

- Top fix for cash ISA transfers: All those that allow you to transfer old cash ISAs in as well as new money have heftier penalties. So here the aim should be to fix for a length you need. Top one year is postoffice.co.uk at 1.7 per cent AER, two year is Barclays at 2.02 per cent AER, three year is Virgin at 2.15 per cent AER.

- Need access to your cash, 1.55 per cent easy access cash ISA. bmsavings.co.uk allows new money and lets you transfer in old cash ISAs, of its 1.55 per cent AER variable interest 1.05 per cent is a bonus for a year.

See mse.me/ISAs for more ISA options

• Now consider locking cash away - earn 2.5 per cent in fixed rate savings.

If you've still money, next consider whether you're prepared to lock it away without access - if so, you can fix with a locked-in rate that's usually higher. Do bear in mind if rates rise over the term you can't switch, so at the moment I don't list fixes longer than three years.

Top fixed-rate savings: krbs.com one year fix pays 1.9 per cent AER, min £1,000. The top three year fix is investec.co.uk (min £25,000), which pays 2.5 per cent AER unless the Bank of England base rate plus one per cent is higher, in which case you get that. If you've less, shawbrook.co.uk Bank is a three year fix at 2.5 per cent AER (min £5,000).

• Got any left? Earn 1.4 per cent in the top easy access normal savings.

Now we're down to the bog standard easy access payers. Here you can put in big amounts and withdraw cash at leisure.

Top normal savings: The Post Office pays 1.4 per cent or over-50s can get 1.55 per cent with saga.co.uk (min £1,000).

Before you rush off to pour cash in the fountain, a few key tips...

a) You pay tax on savings interest (if not in an ISA). Higher rate taxpayers lose 40 per cent of their interest to the taxman, basic rate 20 per cent.

b) Non-taxpayers - cash ISAs may still be worth it. There's no tax gain, but they often pay higher rates than equivalent savings, cash ISA fixes have more access and if you become a taxpayer again, the cash will then be protected.

c) Part of a couple? Put savings in name of the lower-rate taxpayer. If one of you pays tax at a higher rate, providing you trust each other put non-ISA savings in the name of the lower taxpayer and you'll take home more. For those who aren't married/civil partners, there is a tiny risk if one of you died within seven years of this that there'd be inheritance tax on it.

d) Know your savings safety. Provided your money is in a UK-regulated savings account, the first £85,000 per person, per financial institution is Government guaranteed. If you've got more, spread it.

e) Check your local credit union. On rare occasions these beat the rates above, check if there's one near you.

More money saving tips from Martin Lewis moneysavingexpert.com/tips