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Is there any point saving with rates so low?
Base rate is now at a miserably low 1%. But if you hurry, you can lock in savings at rates of up to 4.3%. Indian bank ICICI (icicibank.co.uk) is offering the highest-paying one-year bond at 4.3%, while FirstSave (firstsave.co.uk), part of the First Bank of Nigeria, has a table-topping monthly interest account at 4.17%.
Hold on, you're recommending foreign banks. Haven't we learned a thing or two from Iceland?
Any bank offering an account to UK savers has to be authorised and regulated by the Financial Services Authority. That means that if it goes under, up to £50,000 of your savings are covered by the Financial Services Compensation Scheme (FSCS). But - and this is a big but - if the bank is domiciled abroad, you have to rely on that country's scheme to pay up in the event of a failure. Iceland was overwhelmed by claims so the FSCS paid out instead and is now suing Iceland for the money back.
If that sounds too hairy, then the best rates on offer from a British group are the 3.5% one-year bond from Birmingham Midshires and a 90-day notice account at 4% from West Bromwich Building Society. If you have more than £50,000, remember to spread it around different savings institutions.
Why don't I just leave it under the mattress?
By all means do, but if it's stolen, the most you will get back under your home insurance is £500. According to Halifax, the first place thieves check is under the mattress (followed by the sock drawer), so think of a slightly less daft place to hide it. If you're after rock-solid security, you could try National Savings, the government's savings arm. But rates are grim; expect to get not much more than 2%.
I don't have a big lump sum to put into a deposit account. I can only put aside £50-£100 a month. What do I do?
Well, how about signing up for a "regular savings" account, where you put a small amount of money - in some cases as little as a tenner - aside each month. These accounts tend to offer some of the best savings rates available. For example, Barclays is currently offering a rate of 5.84% fixed for a year to people who sign up for its Monthly Savings account, while Abbey will pay you 4.5%, again fixed for a year. However, the total amount you can put in is usually capped at a few thousand pounds, so if you've got quite a big wad to stash away, this may not be the best bet for you. And these accounts aren't really suitable for people who will need to dip into the cash before the 12 months are up.
Meanwhile, there are some current accounts out there that pay a surprisingly decent rate of interest. For example, if you ditch your existing bank account and go for Alliance & Leicester's Premier Direct offering, it will pay you a whopping 6.31% on the first £2,500 in your account for the first year.
So how much should I be putting away?
The rule of thumb is that everyone should have a savings pot worth at least three months' salary to meet "rainy day" needs - such as losing your job. The truth is that around 4-5 million households have no savings, and while the average figure is around £7,000, that's skewed by a small number of wealthy savers. A more typical figure is £2,000.
Should I have a cash Isa?
Some experts say that with savings rates tumbling towards zero, you owe it to yourself to make use of your Isa (individual savings account) allowance. Each of us can bung up to £3,600 into a cash Isa each tax year, with the big plus point being that all our profits are free of tax. These accounts are available from banks, building societies and other companies. Marks & Spencer (yes, they offer savings accounts, too), online bank Egg and Standard Life Bank are among the companies offering cash Isas paying 3% interest or more.
Shouldn't I just pay off more of my mortgage instead?
In the absence of worthwhile saving rates, using some of the cash at your disposal to take a bite out of any debts you have is a sensible thing to do. Anecdotal evidence suggests that many people whose tracker mortgage rates have fallen sharply in recent months are using the extra cash they now have to overpay on the mortgage. However, credit cards and personal loans should be first in the queue when paying off debts. If your plastic is charging you 20% interest and you're earning, say, just 1% on your savings, your priority should be paying off that debt.
How do I know my savings won't end up as a banker's bonus?
The ethical alternatives for your cash include the likes of Co-op Bank and Triodos Bank. Or you might want to consider schemes such as Zopa. It's an internet-only lending and borrowing marketplace which takes bankers out of the concept altogether. You deposit money with the site, which is then advanced to other users. You can choose your own rate of interest and pick who you want to receive the money, based on their credit record.
But you have to tie up your money for either three or five years. Over the last 12 months, the average depositor at Zopa has earned 9.1%. But remember, the people you are lending it to may not repay, so your capital may be at risk.
Rates are moving all the time. How do I keep up? Where do I go for information?
Track savings rates constantly. Keep an eye on the inside back page of the Guardian's Saturday Money supplement, which lists the best buys in all main categories. The Guardian Money website is also regularly updated, and other websites worth checking for savings rates are moneysavingexpert.com and moneyfacts.co.uk
If we all save rather than shop, won't the economy collapse?
Er ... yes. Keynes called it the paradox of thrift. It's a great idea individually. But if we all do it businesses will go bust and you will be out of a job. And it will be very difficult to save then.
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