Wake-up call for savers!

COME out from under the covers-now is the PERFECT time to end the nightmare and wake up your savings.

Base rates may be at an historic low, but I want to explode the MYTH that all savings are awful and show you how to grab up to SIX PER CENT interest.

The reason for stripping the pyjamas off your accounts now is calmness. Last October UK base rates were 5 per cent, then each month . . . slash, slash, slash, slash, slash, slash until by March it hit a once-unthinkably low 0.5 per cent.

Comparing savings during this slasher-time was hellish, riddled with false best-buy tables populated with accounts only there because they hadn't yet reacted to the last cut.

Now two months of stability means that we can finally see the wood for the trees, and work out the true top deals.

The interest BOOST is huge - e.g. £10,000 saved in Barclays e-savings account paying 0.1 per cent would earn £8 a year after-tax. Combining techniques below, would jump it to £310.

STEP 1: Don't save if you have debt

Debt usually costs much more than savings interest earns. So pay it off.

Suppose you've £5,000 on an 18 per cent high-street credit card and £5,000 saved in a 4 per cent account.

The debt annually costs £900, the savings put £160 in your pocket, so use them to repay the debt and you're £740 better off.

The financial rule's simple: If after-tax savings interest is LESS than the rate of your credit cards or mortgage, PAY OFF the debts. Leave access to emergency funds, though.

A calculator to help is at moneysavingexpert.com/repaymortgage .

STEP 2: Cash ISAs . . . 3.61 per cent tax-free

Next, if you have savings and haven't started an ISA since April 6 when the new tax year started, you're over feeding the taxman.

Each year, everyone over-16 can put £3,600 (jumping to £5,100 from Oct 6 for the over-50s) in cash ISAs, effectively tax-free savings accounts.

This hoicks basic-rate taxpayers earnings by a quarter and higher-rate taxpayers by two-thirds. It stays tax-free year after year until you withdraw it.

Top current payer is Barclays Golden ISA at 3.61 per cent, including a 12-month 1 per cent bonus, followed by National Counties building society's 3.26 per cent.

These are variable-rate, though, so monitor what you earn and transfer to a rival if rates drop too low.

STEP 3: Bag up to 6 per cent in Regular Savings

After your cash ISA is full, use these special high-rate (though taxed) accounts.

The problem is you usually must pay in every month, you can't put that much in (£250 a month) they only last a year, then the cash is shunted in to a rubbish rate normal account. Yet while there, it earns LARGE, just shift the cash at the deal's end.

Top payer is Barclays Monthly Savings account at 6 per cent and you can even miss payments without pain. Next best is Abbey's 4 per cent. More info at moneysavingexpert.com/regularsavings .

STEP 4: Top normal accounts

Now, if you have any left, it's a normal variable rate savings accounts, so always monitor what you earn and switch if too low.

Ulster Bank's 3.46 per cent is the highest-paying instant-access account, including a six-month 0.5 per cent bonus. Yet you need to keep a minimum £10,000 to open it and think carefully if you'll need access in the first six months as then withdrawals lose you interest.

ING Direct offers 2.75 per cent from £1, including a 2.2 per cent bonus guaranteed for a YEAR. However safety guarantees here are from the DUTCH, not UK, government compensation scheme-you must decide for yourself on that. Alternatively for UK protection, Market Harborough Building Soceity's onthedot account offers 2.2% from £1.

If you have big money £25,000+, Investec's High 5 is clever: It matches the average of the markets top five deals so it's always a good rate, and currently pays 3.12 per cent - withdrawals, though, need three months' notice.

QUICK TOP TIPS

It's not just about the best accounts . . .

Get MAXIMUM safety. Whatever the account type, the government's compensation scheme guarantees the first £50,000 per person per UK financial institution. If you have more, say, from selling a house, spread it around to bolster safety.

Yet "financial institution" doesn't mean a bank, as some are inter-linked so you only get one £50k-protection between 'em. Check linkages at moneysavingexpert.com/safesavings .

And beware: Not all is as it seems. For example, Post Office Savings (don't confuse with NS&I) are NOT UK accounts - you're reliant on Irish Government protection and questions hover over its strength.

Is one of you a lower-rate tax-payer? If your spouse pays a lower rate of income tax than you, put savings in their name and you'll earn more.

Fix rates. Economists interpret the Bank of England latest statement as indicating UK rates will stay low until at least early 2010. So a fixed rate such as West Bromwich building society's 4.27 per cent e-bond until May 31 2010 or ICICI's 3.9 per cent fix mean a higher guaranteed rate. However, once money is in, you can't take it out. Full details at moneysavingexpert.com/topsavings .

Send your questions for publication to notw@moneysavingexpert.com .

TV Money Guru Martin Lewis is the creator of the Consumer Revenge website www.MoneySavingExpert.com which is packed with info on how to get more money in your pocket.

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