Banks are desperate for your savings - and rising interest rates prove it

Despite the base rate cut last Thursday, it's still a good time to be a saver. Banks and building societies are engaged in a fierce battle to attract funds by offering customers some of the most attractive interest rates seen for years.

A number of accounts offering over 6 per cent have appeared in the last few weeks, with one bank, Kaupthing Edge, entering the UK market for the first time with a highly competitive product.

Rates started increasing around August last year when the credit crunch kicked in, but the last time savers could choose from such a wide range of accounts paying 6.5 per cent or more was 2001. 'There's obviously a huge need for cash at the moment and it's causing a massive amount of competition between providers,' says Susan Hannums at AWD Chase de Vere.

Kaupthing Edge, part of the private bank Kaupthing Singer and Friedlander, launched an online instant access account last weekend, paying 6.5 per cent gross. It promises the rate will be at least 0.3 per cent (gross) above the base rate until 1 February 2012 and it says it won't cut the rate following last week's reduction. To get the best rate, savers need an initial deposit of £1,000.

Only West Bromwich building society can beat this, with a 6.55 per cent rate on its Star Easy Access account, accessible online, through the post or via branches. The rate was available at the time of writing although the West Brom says it will be reassessing all its rates on Tuesday......continued below

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The account allows up to 12 withdrawals a year and comes with a 'staggered guarantee' that the rate will be at least 0.5 per cent above the base rate until 1 February next year and at least match it until October 2009.

Last week Abbey also upped the rate on its online eSaver Direct account from 6.15 per cent to 6.5 per cent. This includes a bonus of 0.5 per cent for 12 months, with interest then reverting to 6 per cent. The account is not altogether straightforward, however: savers will receive interest of just 3 per cent on the total balance in any month in which money is withdrawn.

For those not happy to bank online, Indian bank ICICI offers 6.4 per cent on an instant access account that can be operated by phone, while Anglo Irish has a 6.3 per cent post or telephone account.

When it comes to Isas, Icelandic bank Icesave has just launched its first, paying 6.1 per cent for deposits of £1,000 or more. Last week, Alliance & Leicester launched a cash Isa paying 6.25 per cent on deposits from as little as £1, though this includes a 1 per cent introductory bonus expiring in May 2009. Both allow transfers-in from other providers. They are beaten on rate by the Scarborough, which pays 6.3 per cent, but only if you are prepared to give 30 days' notice.

HSBC, meanwhile, has just launched a high interest savings account for children, paying 7.72 per cent monthly from £1 invested up to £1,000.

NS&I was among the first providers to announce a fall in saving rates reflecting last week's base rate cut. The rate on its Direct Isa account is down from 6.05 per cent to 5.80 per cent, although it is guaranteed to be at least 0.55 per cent above base rate until 5 April.

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