Get the most from your savings

What few savings we have are very precious. They should be nurtured accordingly. Sarah Modlock shows you how.

Building a nest egg through regular or even lump sum savings provides peace of mind and can make big expenses, such as a house deposit or wedding, achievable. While holding on to extra cash in your current account might be convenient, the extremely low interest rates - as little as 0.1% - paid by big banks means that your money will not be working hard. Spare cash tucked away in the most basic of savings accounts could earn closer to 4% interest.

Determine your saving goals

If you are saving for a specific item or event, calculate how much you need to put aside each month to afford it. It is worth saving a little extra on top in case prices rise. Think about how long you can afford to tie your cash up for and whether you may need instant access. Tax can also be a factor. If your personal income is less than £4,745 per year then you will not have to pay tax on your savings. The 2004/05 allowance rises to £6,830 for those aged 65-74, and again by a further £120 for the over-75s.

Building an emergency cash fund

It makes sense to build an emergency cash cushion in addition to your other savings. The rule of thumb used by financial advisers is to save the equivalent of three months' net salary. Instant access accounts are ideal for money that you may need to get your hands on quickly. Make sure that access to your cash really is instant, rather than by cheque. A cash card for the account will also be useful for withdrawals 24 hours a day.

Risk and reward: Considering the different saving options

If you like taking little or no risk with your money then basic deposit accounts may not promise the highest returns, but they do provide security.

Beyond the comfort of instant access is a range of options:

No notice accounts tend to offer slightly better rates than instant access because the account is usually run via telephone and/or post, and your money can take a couple of days to reach you by cheque or transfer.

Internet-only accounts offer flexibility for web-surfing savers. They can often provide competitive rates because their costs are low. But if you like the security of telephone back up, find out whether this is offered and if you will be charged for calls. Plus, make sure you know how to get your money out. Many accounts offer higher introductory rates.

Notice accounts generally pay you higher interest on the basis that you give notice for any withdrawals. You will have to wait between one and three months to get access to your money, although instant access is usually possible, subject to an interest penalty - of between 30 to 100 days - on the money you withdraw.

Fixed rate accounts or savings bonds tie up your cash for between one and five years or until a specified date can secure the certainty of a fixed return. Accounts can usually be opened with between £1 and £5,000. As with notice accounts, early access to capital in these accounts is not usually permitted without incurring a penalty.

At the other end of the spectrum are schemes based on stockmarket performance. These offer the potential of higher returns when the market is good. The flip side is that your money may not grow at all and you may not even get all your original investment back.