Money: Free money: hail the liberation

You no longer have to lock up your deposits for months if you want a top rate of interest. By Tony Lyons

WHEN IT comes to looking after your cash, competition has never been fiercer as instant-access, postal and telephone accounts proliferate.

The move by the Office of Fair Trading to investigate the changes in interest paid on some fixed-term savings products, prompted by the recent action of Northern Rock, is making financial institutions rethink how they treat their customers. The risk of them arbitrarily changing rates without notification and not indicating which accounts will pay the highest rates is now diminishing.

In addition, a new breed of deposit takers such as the supermarket chains can be added to the list of traditional homes for your money.

Next April the new Individual Savings Account, which will replace PEPs and Tessas, is being introduced. In the first year, we will be able to hold up to pounds 3,000 in cash in the new tax-free medium.

After April 2000, we will only be able to put a maximum of pounds 1,000 a year into an Isa deposit account. But already some of the savings institutions such as the Halifax and Yorkshire building societies are beginning to open what look like Isa-type accounts that pay good rates of interest on low balances.

We all need some rainy day money that we can easily lay our hands on. When it comes to looking after your cash, it used to be the case that if you were prepared to give one-, two- or three-months' notice before making withdrawals then you could expect a better rate of interest.

This remains true to some extent. If you look at everyday bank and building society instant access accounts, most will pay between 3.25 and 4 per cent for holdings of under pounds 1,000, slightly more for larger amounts. But you can walk into any branch to make deposits and withdrawals.

However when you have to give 30 days' warning of a withdrawal, you can expect to earn 6.95 per cent with Bradford & Bingley or 6.75 per cent with the Royal Bank of Scotland, two of the best rates for pounds 1,000 from the larger institutions. Some smaller deposit takers will pay up to 7.6 per cent.

But today, it hardly seems worthwhile having to give notice of any withdrawals as there are now a number of instant access accounts that pay good rates of interest. One of the best comes from Safeway, the supermarket group. It operates a postal direct savings account which will accept balances from pounds 50 and pays interest of 7.3 per cent on deposits of more than pounds 1,000.

Only just behind is Cheltenham & Gloucester's instant transfer telephone- operated account, which pays 7.25 per cent, Scottish Widows Bank's postal account, which pays 7 per cent, and Standard Life Bank's instant telephone account, which pays 6.9 per cent. Most first-time Tessas are paying more than 6.5 per cent tax free, although Norwich & Peterborough and Bradford & Bingley building societies will pay 8 per cent for deposits of more than pounds 100 and pounds 500 respectively. All of these will vary with interest rates.

If you want a fixed rate of interest you will usually have to hand over pounds 5,000 for at least one year. A number of building societies and banks will pay you between 7 and 7.5 per cent for one year and anything up to 7 per cent for five years on their fixed rate bonds. Basic-rate tax-payers could also look at guaranteed income bonds. Longer-term investments attract a lower rate of interest - you could expect a touch more than 5 per cent for five years.

At weekends, The Independent and The Independent on Sunday publish tables showing the best savings rates.

Bradford & Bingley, 0800 592588; Norwich & Peterborough, 01733 372222; Royal Bank of Scotland, 0800 880880; Safeway, 0800 995995; Standard Life Bank, 0345 555657; Scottish Widows Bank, 0845 845 0829; Cheltenham & Gloucester, 0800 742437; Pinnacle, 0181-207 9007; GE Financial Insurance, 0181- 380 3388.