Maximising returns for those who want to keep SSIA savings habit going

Laura Slatteryexamines which banks offer the best rates for savers at various amounts

If your good intentions to save rather than spend in 2007 have survived winter misery and a forest of 50 per cent off signs everywhere you turn, the odds are that you will keep your discipline intact for the rest of the year.

Almost every week sees the launch of a new savings account or improved interest rate designed to attract any surplus cash sitting in consumers' all-too-accessible current accounts.

Interest rates on both deposit accounts and regular savings products have crept up nicely in recent months as savings providers rush to capture the custom of the 1.1 million Special Savings Incentive Account (SSIA) holders whose accounts are maturing.

The offer of a 25 per cent Government bonus on SSIA contributions tied up for five years will probably never be bettered but the intensifying competition prompted by new market entrants RaboDirect and Halifax, combined with six hikes in interest rates by the European Central Bank (ECB) over the past 14 months, has helped push up the amount of interest savers can expect to earn on their money to more than 4 per cent on lump sum deposits and more than 6 per cent on regular savings.

But with all the main competitors citing different terms and conditions - and some including catches that make it very easy for customers to be cut out of the advertised headline rate - picking the right account can fox even the most dedicated would-be savers.

So which bank is the best?

As the examples in the table show, the most appropriate home for cash that doesn't mysteriously get sucked out of the ATM for a temporary spell in our wallets will largely depend on the saver's circumstances, how much they have to put in and whether they will need to make instant withdrawals from the account.

But the first thing to consider is whether they want to save on a regular basis or strictly one-off: former SSIA holders, who want to re-invest their lump sum and also find an alternative place for their SSIA contributions, could well be on the lookout for both.

Where to save €250 a month

In terms of interest rates, Halifax just edges out AIB when it comes to regular/monthly savings accounts.

Halifax has an annual rate of 6.65 per cent, while AIB's rate is 6.6 per cent. Both have minimum monthly contributions of €10.

AIB pays the interest on balances twice a year, in April and October, while Halifax pays interest annually on the anniversary of the account opening.

The Halifax account has a price promise to stay at a margin of 1.5 percentage points above the ECB rate until January 31st, 2008. AIB does better, saying its rate will stay at 2.5 percentage points above the ECB rate until 2008.

But the big catch with the Halifax account is that if savers make more than two withdrawals per year or stop their monthly payments, the interest rate will revert to 2.25 per cent. The amount saved each month can only be changed once a year.

At AIB, there are no penalties and no limits on withdrawals, while savers only have to contend with five working days' notice if they want to change their contribution amount.

It also allows unrestricted payment holidays should savers find their constrained budgets get in the way of their resolution to be prudent.

Where to save €500 a month

AIB's account has a maximum monthly contribution of €300 a month, which will suit someone who wants to keep contributing the €254 sum maximum that they put into their SSIA every month.

For anyone who wants to put aside a little bit more, or say a couple who want to find a joint home for their SSIA-sized monthly savings, Halifax has the higher maximum contribution rate of €750 a month.

But, if you don't like Halifax's terms and conditions, where should you look?

Bank of Ireland's Special Bonus Saver account offers a rate of 6.25 per cent on regular savings. The minimum contribution here is €20 a month and the maximum is €1,000 a month - or double these amounts in the case of joint accounts.

Although the rate is not as high, the account is more flexible than Halifax's.

The next highest rate on regular savings comes courtesy of Anglo Irish Bank, which offers an annual interest rate of 6 per cent to savers putting aside at least €100 a month, up to a maximum of €1,000.

The interest due is credited to the account on the anniversary of the opening.

This account, however, has a term of two years. Early withdrawals will result in the account being closed and the balance transferred to Anglo's Easy Access deposit account, which has an interest rate of 3.5 per cent - not shabby, but not the best deposit rate in the market.

Meanwhile, Permanent TSB has introduced a rate of 5 per cent on amounts up to €25,000 under its 21-day notice account. Regular savings of as much as €1,000 a month can be made up to this limit, at which point the interest rate reverts to 1.5 per cent on the full balance.

AIB current account customers can also contribute up to €1,000 a month to its online savings account, which has a rate of 4.35 per cent and offers a small amount of bonus interest in some circumstances.

Find a home for a lump sum of €1,000?

For people who don't want to have to sit out a 21-day notice period if they need their cash in an emergency and also want to contribute more than €1,000 in just one electronic transfer, online bank RaboDirect offers an interest rate of 4.75 per cent on balances between €1 and €10,000 under its savings account. This makes it a good choice for someone with a medium-sized SSIA lump sum.

The RaboDirect account would also be suitable for someone who has amassed the €20,000-plus lump sum by contributing the maximum permitted sum to an SSIA for the five-year term but now only wants to reinvest half of their savings - having something more fun in mind for the rest of their cash.

Invest a €20,000 lump sum and retain easy access to the money?

The best demand deposit rate in town for people with lump sums larger than €10,000 is available online from Northern Rock, which has an annual interest of 4.15 per cent.

It has a minimum balance requirement of €1,000 and the interest rate will drop to a mere 0.10 per cent if this isn't satisfied. But otherwise the account is flexible and will allow deposits of up to a dizzying €3 million.

It is worth noting that RaboDirect is currently offering an interest rate of 3.7 per cent on balances that exceed €10,000.

Lock away a €20,000 lump sum for three years?

Last week, First Active launched a range of deposit accounts claiming to offer the best fixed rates over terms of between two and five years. Over three years, First Active will pay a gross rate of 13.25 per cent, which works out as an annual rate of 4.23 per cent. The minimum contribution is €5,000.

Unlike the other savings and deposit products mentioned, which boast variable interest rates that could go either up or down, First Active's rates are fixed for the deposit period.

However, savers who can afford to lock away a €20,000 lump sum over a longer period than three years should consider equity-based investments, which have the potential to give them higher returns.

Many companies now offer bonds that guarantee that investors will at least get their original capital back.

Invest a lump sum and continue to make regular savings?

Bank of Ireland's Special Bonus Saver account allows SSIA holders to get a reasonable interest rate on deposit - 4 per cent - for the first three months while continuing to make regular savings into the same account. But after three months, the interest rate reverts to the ECB rate - currently 3.5 per cent.

RaboDirect's account also facilitates both regular contributions and lump sums.