Called to account

As interest rates tumble, it pays to keep your money on the move if you want it to keep up the hard work.

Interest rates are now at their lowest level since 1977. With returns on even the best savings accounts now a third less than they were at this time last year, is there anything that you can be doing to make sure that your cash is working that much harder?

First you should check to see how your savings account compares with others on the market. Many accounts offer stunning returns when first launched, but this superiority can be fleeting.

"You often find that, 12 months down the line, that rate has slipped behind," says John Bumford of independent financial advisers Gee & Company.

Check your account every six to 12 months to see if it has been superseded by a better one, he says.

Two years ago, Sainsbury's Bank was topping best buy tables for the high interest paid on its instant access account. But it has fallen behind and pays 4 per cent gross interest a year on balances up to pounds 2,500, while Egg pays 5.5 per cent.

Bristol & West pays 6.2 per cent on balances of pounds 1,000 or over, though the account limits customers to six withdrawals a year and the interest rate includes a 1 per cent bonus that only lasts until the end of October.

In many cases, banks and building societies are now better at keeping customers informed. Complaints and publicity in the past two years about accounts becoming obsolete - when one is no longer marketed and the rate of interest becomes uncompetitive - led to a change in the banking code. Banks must now write to customers when rates are being lowered.

But if you do not have the time to keep monitoring interest rates and switching accounts, says Christine Ross, of the independent advisers Willis National, then choose an account that is likely to stay competitive.

"You can either go for an institution that is fairly well-established... or one that has a base-rate tracker account," she says. Northern Rock's base-rate tracker account has a minimum balance of pounds 5,000. The rate is guaranteed to remain above the base rate until January, and then at no less than 1 per cent below base rate for the following year.

Virgin offers a similar "tracker" savings account, while First Active operates an account that promises to pay the average of the rate paid on a pounds 10,000 deposit by the 20 largest savings institutions - except that in its case the rate applies to deposits from pounds 1,000.

Of course, if you have thousands of pounds sloshing around in a current account, you could be wasting a chance to earn interest.

Telephone banking makes it easy to check your balance and transfer funds to a savings account. However, some banks, including HSBC and NatWest, offer customers a "sweep" facility.

This is how it works - if your current account balance is more than a certain amount at a specified time of each month, the excess is automatically transferred to an account earning higher interest.

HSBC will do this free of charge, while NatWest charges a one-off fee of pounds 35.

However, NatWest also has a daily auto-transfer facility. A customer can specify a maximum current account balance of just pounds 1, and every day anything more than that will be syphoned off into an interest-bearing account.

Unfortunately, NatWest pays such low rates of interest on its savings accounts, - at least on balances below pounds 2,500 - that potential gains are meagre. Someone with a pounds 1,500 monthly pay cheque would only gain around 90 pence a month - and it costs pounds 75 to sign up.

The best way to ensure that you are making the most of all your cash is to take out a current account mortgage. These are offered by Virgin Direct and First Active, and take the form of a single bank account that you use for borrowing, including your mortgage and savings, and as a current account.

This mortgage works on the principle that having assets and debt simultaneously wastes money. The account is always in net debit, because of the mortgage, so savings effectively receive tax-free interest.

Interest in these accounts is calculated daily and the credit balance on your current account goes to work straight away to minimise your mortgage and your interest bill.

As with most flexible mortgages, any overpayments can be "reborrowed" Someone paying a salary of pounds 1,500 into their One-account each month would save pounds 4.62 a month in interest. "You're using your money to pay off debt, and that's always the most efficient way in a low-interest environment... also because there's no tax to pay," says Adrian Webb of Virgin Direct.

However, some people naturally prefer to keep their money in separate blocks for fear of losing track. Many carry a reasonably high variable rate of interest, so you have to work out if your savings are worth it. A mortgage with a discounted rate could have saved you more money.

Gee & Company: 01743 236982; Virgin Direct: 0845 6000 001; Willis National: 0171-488 8383