When it comes to savings - hunt out a deal that pays more

THERE'S no such thing as a free lunch but you can still get a free transfer.

We're not talking football here – after all, the transfer window has closed – but cash.

You probably know that you are allowed to save a set amount each year without being liable for tax.

This year it's £5.640 in a cash ISA and the same sum in a stocks and shares ISA.

You will obviously put your money in the account that offers a decent rate of interest.

But that is not the end of it. You need to keep an eye on that interest rate in years to come.

If it drops, you can transfer the money to a different account with a better rate.

But do not take the money out of one and pay it into another, or you will lose the ISA allowance.

All ISA contributions have to be recorded by the provider and reported to the HM Revenue and Customs to stop people accidentally (or deliberately) making multiple ISA contributions with different providers and exceeding their annual allowance.

Scott Gallacher, director of Leicester-based independent financial adviser Rowley Turton said it was vital that savers reviewed their accounts and interest rates on an annual basis.

“Banks and building societies have a terrible history of making existing accounts obsolete by introducing new accounts with slightly different terms and conditions. This allows them to reduce the interest rates on the existing accounts in the hope that these account holders do not notice the interest rate reduction or forget to switch to a new account.”

The classic example of this practice, said Mr Gallacher, is the Leeds Liquid Gold account which offered a very good rate in the 1980s and was heavily advertised with ads featuring Arthur Daley. This account (now the Halifax Liquid Gold account) is now closed to new savers and paying just 0.05% a year, meaning that someone with £10,000 in that account would now be only receiving £5 a year in interest compared to £300 a year if this money was moved to a new account paying 3.00% a year.

Mr Gallacher said: “Whilst people should undoubtedly be checking that their savings are earning the best rates and not languishing in a dormant account, they should also consider whether bank or building society deposit accounts are appropriate for providing them with a long term income.

“Many people don’t realise that it is important that they protect their ‘real income’ as prices rise almost every year; consequently they need an income that also increases each year and the only way to sensibly achieve this is from a balanced investment portfolio.”

If you are not getting a competitive rate for your savings, hunt out a deal that pays more.

An example is the West Brom WebSave ISA 6 account, which pays 3.18% annual interest on a minimum investment of £1,000. This rate includes a 1.66% bonus which is payable until the end of September, 2013.

The 3.18% rate is the Annual Equivalent Rate (AER) and is slightly higher than the account's quoted 3.16% tax-free rate. This is because the AER reflects the fact that interest is credited to the account on April 5, 2013, meaning interest is then paid on interest until the end of the bonus period.

The maximum you can invest in the account this tax year is the annual cash ISA allowance of £5,640, but you can also move any additional funds held in existing cash ISAs into the account, up to a maximum of £75,000.

You can make withdrawals whenever you want, but you must give 60 days' notice each time or lose 60 days' interest.

This account can only be opened and operated online.

The Coventry 60-Day Notice ISA pays a higher rate of 3.25% tax-free, but it does not accept transfers-in from existing ISAs. That means the maximum you can invest this tax year is £5,640. You can open the account with a minimum investment of £1.

The rate includes a 0.50% bonus paid for the first year the account is open. Again, you must give 60 days' notice if you want to make a withdrawal.

If you need urgent access to your money then, you can make a withdrawal without giving notice, but you will be charged 60 days' interest on the amount withdrawn.

The Coventry account is operated by telephone, but can also be operated in branches, by post or online.

Neither account will suit savers who need regular access to their cash, as you have to give notice before you make a withdrawal.

Remember too that both accounts' rates include a bonus, which means that you may want to move your money once the bonus period ends.

With any account that includes a bonus in the rate, always make a note of when the bonus disappears, as you will need to move your money at that point if the rate is no longer competitive.

If you don't want to keep moving your money, then your best bet may be to go for a 'clean rate' account, with a rate that doesn't include a short-term bonus.

Virgin's offering of 2.85% makes its easy access ISA he best 'clean' rate ISA on the market, both for transfers and new ISA money.

The account permits savers to make unlimited withdrawals without notice and allows transfers-in from other ISAs.

Please note: Any rates or deals mentioned in this article were available at the time of writing.