Trapped in the worst savings account?

By SYLVIA MORRIS FOR MAILONLINE
Updated: 00:00 EST, 2 March 2007

Savings rates may be rising for some, but if you're stuck in the wrong account you'll be losing money every day because the interest paid doesn't even keep up with inflation.

The rates on some accounts are so poor you might as well keep your money under your mattress. These are Britain's worst savings accounts and they are run by some of the biggest names on the High Street.

Some pay less than 0.8% after savings tax - just 1% even before tax. So on every £1,000 you would earn just £8 a year interest.

Lloyds TSB Flexible Savings, NatWest Diamond Reserve, Lloyds TSB 90-Day Notice and Abbey Investor 60 are among the worst. All are closed to new savers as the banks are now running other accounts paying more interest. Co- op Cashsaver - with the slogan 'Watch your savings grow' pays 0.74% (0.93%). Leave £100 in this account and it would 'grow' by a measly 74p in a year.

With Alliance & Leicester Instant Access savers earn just 0.6% (0.75%) on deposits of £5,000 - or £6 a year after tax per £1,000. The bank has turned its back on branch customers, concentrating instead on those who use the phone or internet.

Even on those marketed as 'notice accounts' - where you have to give the bank or building society several weeks' warning that you want to withdraw money - some pay 1.6% (2% before tax) or less. This is less than half the inflation rate, currently running at 4.2%. To keep the value of your savings you need to earn the rate of inflation after tax.

It is also well below the average rate on offer, says information provider Moneyfacts. Savers can expect an average 2.63% (3.29%) on easy access accounts and 2.77% (3.46%) on notice accounts on £1,000. But there are much better deals around.

Money Mail has trawled through accounts that are closed to new savers, as well as those that are still open but have become poor value as banks and building societies replace them with better deals to attract new savers while dishing out the slops to loyal customers.

Old rules under the Banking Code demanded that banks and building societies paid the same rate of interest on their closed accounts and newer accounts which had similar terms and conditions. But that rule fell by the board and savers are suffering.

A host of other poor-paying accounts litter the bank and building society industry. HSBC pays just 1.36% (1.7%) on savings up to £10,000 in its Instant Access account, while RBS Instant Access Savings pays 1.36% to 1.44% (1.7 to 1.85%) depending on your balance. Barclays Prime pays even less at 1.32% (1.65%) at best.

But savers do not have to put up with poor rates on the High Street. The Post Office pays 3.6% (4.5%), plus an introductory short-term bonus. Each £1,000 earns you a much healthier £36 interest. Co-op also has a much better account than Cashsaver. It is called Smart Saver and pays 3.6% (4.5%).