For various reasons, I've been looking at savings accounts, interest rates and stuff like that. It's incredible how wildly different banks are at this sort of thing. It's also incredible how much you're missing out on because your bank doesn't give you a tiny bit of extra interest.
To really grasp all of this, you need to understand compound interest calculations. As a example, say you have 5,000 quid, and leave it in an account for five years. Here in the UK most accounts pay tax-paid interest (meaning the tax on the "gain" has already been taken out) which means that you get much less money than the bank rate might suggest. If you don't pay tax like this, then you're very lucky and likely to get richer quicker than the rest of us.
Here's a bit of a comparison between some of my favourite banks with 5000 quid:
BankAccountNet PAYear 1Year 2Year 3Year 4Year 5smileCurrent Account2.4%5120.005242.885368.715497.565629.5smileSavings Account (with current account)3.2%5160.005325.125495.525671.385852.86ING DirectSavings Account3.8%5190.005387.225591.935804.436025.00* Don't take any of this information as gospel - it's just my research and may not be completely accurate!
So it's really easy to see that banks like Abbey who offer flexible accounts with a top whack rate of 3.72% (Net PA, on balances of 200,000 or more!) really don't compete at all. Even if you could get that rate on 5000 quid, you'd end up with 6001.81 at the end of five years (okay, not a huge difference, but actually, Abbey would pay you 3.48%, leaving you with just 5932.7).
Having said that, some of these banks with crap rates do offer long term savings options, with rates or around 4.28% (Net PA) if you're prepared to leave your money where it is for a year or longer (huge charges if you change your mind though).
So the moral of the story is:
1) Don't have debt (yeah right)
2) Don't keep cash in your current account
3) Get a high interest saving account for some of your money (so you can get to it when you want)
4) Consider long term savings plans for some of your money
The other thing worth noting is that whilst working out compound interest, trying to decipher AER, Gross PA, Net PA, equivalent monthly rate, etc etc is thoroughly boring, it's worth getting bigger percentage numbers. Even a .1% difference can make real cash differences over a few years. Also, things that look good, like Cash ISAs may actually not be as good as an ordinary savings account at a different bank (beware any charges for anything - they destroy any gains you might make).
It seems to me, you "might as well" move your money to a high rate account. I mean, savings accounts cost nothing to setup and have no charges, so you should be free to do what you like. The "lock in" accounts are different, so should be considered separately. A quick comparison of some accounts may help.