After more than a decade of derisory payouts, savings accounts are finally paying decent returns.

A growing number of people, in many cases retired, now have a wide choice of accounts with differing rates and conditions. Everyone’s circumstances are different: some can lock cash away for years, while others only feel comfortable if they can make instant withdrawals in case of emergencies. 

Telegraph Money asked Claire Jones of Flagstone, a cash deposit platform, to give her views on three scenarios that represent common questions we get asked by readers.

For simplicity’s sake, we have not considered tax. In reality, tax would be a problem for any money held outside an Isa. Once you earn interest over £1,000 a year (if you are a basic-rate taxpayer) or £500 (for higher-rate payers), returns are subject to income tax. 

Scenario 1

A retired couple in their 70s with £100,000 in cash. They are happy to lock up £80,000 for more than a year, but need access to the rest – though not necessarily daily

Claire says: “The retired couple could take advantage of some of longer-term fixed accounts, specifically the National Bank of Egypt 12 month Fixed Term Deposit, which pays 4.97pc. 

“They can place £80,000 into this product, earning themselves interest of £3,976 a year. If they are comfortable securing a longer fixed term, and concerned that rates might be significantly lower in 12 months’ time, another option is Hampshire Trust Bank’s 2 Year Fixed Term Deposit, paying 4.75pc, which would generate £3,800 a year in interest.

“For the remaining £20,000, they could opt for the SmartSave market leading Instant Access product, paying 4.95pc gross or 5.07pc AER (which takes account of interest compounding), and so generating interest of £1,014 a year. 

“However, if they are willing to forgo instant access, they could choose a 120-day notice product, paying slightly more at 5.03pc gross/5.15pc AER, earning £1,030 in interest. They could also choose both accounts and put £10,000 in each.

“All of these accounts would be covered by the Financial Services Compensation Scheme. This balanced portfolio would meet their near-term liquidity requirements and generate a blended interest rate of 4.81pc to 5pc, equivalent to between £4,814 and £5,006 a year.”

Scenario 2

A working woman in her 50s with £100,000 in cash. She needs ready access to £80,000 but can lock up £20,000 for up to three years

Claire says: “The lady could opt to place £80,000 into the SmartSave market leading Instant Access Account, which pays 4.95pc gross / 5.07pc AER. This account allows unlimited withdrawals without any restrictions and would earn her £4,056 in interest a year.

“If she is willing to restrict access somewhat, she could achieve a slightly higher rate with the SmartSave 120 Day Notice Product, currently paying 5.03pc gross/5.15pc AER,  earning £4,120 in interest a year.

“For the remaining £20,000, she could secure the Isbank 3 Year Fixed Term Deposit, currently paying 4.50pc, earning £900 a year in interest. Alternatively, she could lock in for a shorter period and secure a slightly higher rate of 4.95pc with the Al Rayan 12 Month Fixed Term Deposit, earning £990 a year. 

“Her selection here would probably be driven by her view on the likelihood of significantly lower savings rates in 12-24 months.

“This balanced portfolio would meet her near-term liquidity requirements and generate a blended interest rate of 4.96pc to 5.11pc, or £4,956 to £5,110, again covered by the FSCS.”

Scenario 3

A working man in his 40s. Has no savings, but can put aside £1,500 a month for the next five years. Doesn’t need access for five years

Claire says: “A number of big banks offer good savings rates with specific requirements. For example, Santander Edge Saver offers 7pc AER with a minimum deposit of £1 and a maximum deposit of £4,000, or £139.46 a year in interest. Once his savings have grown, he can reassess and diversify his investments.

“We would also suggest that he look into cash Isas to take advantage of the tax-free personal allowance. You can invest up to £20,000 in Isas each year without paying tax on the interest you earn. 

“The best rates over the past 12 months have been around the 5pc mark. Currently, Chip offers a cash Isa at 5.1pc with no minimum required. If he puts in £300 a month, he’ll get a return of £101.02 a year.”

Have you got a savings strategy to maximise your returns? We want to hear from you! Email money@telegraph.co.uk

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