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Where''s safe for your savings?

Now that inflation has now hit a nine month high at 2.9%, UK citizens are likely to be worried about feeling pretty low about the overall health of the economy and in particular, their savings. To actually make more than a pittance this tax year, a basic-rate tax payer will have to earn 3.63% on their savings and higher-rate taxpayers will have to secure 4.84%.

Interest rates on the other hand have hit rock bottom. The average instant access account is currently paying approximately 0.75%, meaning that after tax inflation the average return is a depressing minus 2.3%, thanks to the low base rate of 0.5% interest set by the Bank of England. Finding a savings account that is actually worthwhile is becoming increasingly difficult.

One fairly safe bet however is an ISA. Tax free savings accounts, Instant Access Savings accounts allow you to invest up to ?7,200 each tax year. You can put it all into a stocks and shares ISA, or half of it can go into a cash ISA and the remainder in stocks and shares.

One of the best types of ISA if you are after maximum returns for minimum effort is a corporate bond. Offering you the chance to earn regular income throughout the year, corporate bonds offer high potential for regular returns on your investment at various times in a year.

Corporate bonds are issued by businesses trying to raise cash for investment. They are also referred to as fixed interest securities as the payments are decided in advance.

Because of the low risk and tax free savings, corporate bonds are some of the most attractive investment opportunities available on the market right now. But as with all other ISAs they should be considered as medium to long term investments of five years or so.

Tax free corporate bonds are available with Legal and General. Customer investments are pooled together therefore they can buy and sell a wider range of bonds and thus obtain greater earnings potential. The tax-free income earned from these bonds amounts to a current gross distribution yield of 6.1%.

Seeing as the banking system is likely to experience a major shake-up in the coming months, particularly if President Obama''s new plans get through Congress, putting your money in a safe place now should pay decent dividends in the future and at least ISAs will avoid the worst of the fluctuations in inflation and interest rates.

Scherbring is very knowledgeable on savings and accounts and loves to write about corporate bonds.

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