You may not think it possible but it is actually the case that you can now lose money in a savings account! But how, surely your money is safe? The answer is yes, of course your money is physically save (providing you stick to the £50k maximum). The loss actually occurs in a far less obvious way.

It’s all to do with the current rate of inflation. According to the Bank of England, in May 2009 the rate of inflation stood at 2.3%. But this simply meant that something costing £100 this year will cost £102.30 next year. Therefore when you take into account the falling value of money, and the taxation you pay on your interest, your savings rates can look a lot less attractive. In some cases you are actually going backwards.

For example if the rate of inflation remained at 2.3% for a whole year and you invested £1000 into a savings account at 2.5% for this period your interest at the end of the year would be £25 gross. Minus 20% for a basic rate tax payer (or even 40% if your a higher rate tax payer) and your net final figure would be £20. Meanwhile, if you compare how much your savings would fall in value during the year due to inflation - £23, you would find that your account has actually lost you money.

This effectively means that after saving £1000 for a whole year at 2.5% you will have actually lost £3! It is therefore vitally important that your savings are a savings account that pays above the rate of inflation, otherwise you could end up losing money. If you have any funds that are in account earning less than this you will be losing money.

The good news is that the inflation rate (CPI) has now fallen to 1.1% (as at October 2009), which means that in order to make a profit you need to find an account paying 1.3% or more.

It may surprise you to find that if you're a basic tax rate payer, 20% of any interest you receive on your savings actually goes to the tax man. If you are a higher rate tax payer, this will be 40%. The only tax relief you get on your savings are when they are invested into Cash/Investment ISAs.

At the beginning of the 2008/09 tax year (6 ^th April 2008 - 5 ^th April 2009) the government extended the allowance of how much you can save in ISAs from £7,000 to £7,200 per year. This means that savers can now invest up to £3,600 into a cash ISA each year and up to the remaining £3,600 into an investment/stocks and shares ISA, or up to the full £7,600 limit into an investment/stocks and shares ISA (or a combination of the two).

In the 2009 budget report, Chancellor Alistair Darling announced details of a further increase to the ISA limit to £10,200 either split between Cash and investment ISAs (max. £5,100 into a cash ISA). These changes came into affect on 6 October for those aged 50 or over, and will kick-in for everyone else in the beginning of the new tax year - 6 April 2010.

Please remember, you can only open one ISA per financial year and you are only allowed to add funds to one ISA during each financial year.

For example you can either open up a new cash ISA and deposit up to £3,600 into it, or you can add up to £3,600 to an existing ISA. However, you can have up to 2 ISAs when making use of both investment/stocks and shares and cash ISAs.

It is also important to note that any unused allowance will not be rolled over from one year to the next. This means that if you don't use your full tax-free ISA allowance, you lose it. For more information on ISAs please see our ISA section.

The main incentive in using ISAs is that you don't have to pay any tax on the income you receive from your ISA savings and investments. This includes dividends, interest and bonuses.

Fixed rate bond savings accounts offer savers a higher rate of interest in exchange for giving up access to their savings for a set period of time. Typically, the longer period of the bond, the higher the interest rate on offer. This however is not always the case as some fixed rate bonds can offer a higher rate of interest for 1 year than 3 years. If you find that you have 'cushion' of cash built up in your current account (£1000+) and feel that you would not need to access this for 6 months to a year then we would suggest that you deposit these funds into a fixed rate savings accounts. By giving up access to your cash for a certain period of time it is possible to earn rates higher then the best instant access savings account.

This does take some money management skill, but if you can keep as much of your day-to-day money in an instant access savings account, rather than a current account then you can capitalise on the better interest rate. A standard current account only pays around 0.1% AER interest. The top instant access savings account will pay around 3.30% AER (as at October 2009), making you 3.29% AER better off. All you do is make sure there is enough money in your current account to cover direct debits and general spending, by topping up your current account with funds from your instant access savings account as and when required. This can be done very easily with online banking. A new faster version of the APACS system now allows internet transfers to take hours rather than the standard 3 days, helping you to manage your cash requirements.

This may not be suitable for everyone; however it is a great way of earning a high level of interest on your salary as soon as it is in your possession. You can then move funds to your current account as and when required.

All the instant access savings account listed on www.which4u.co.uk come with online banking facilities. Once you have applied for one of these accounts you will be able to set this up, giving you 24/7 access to your savings account. This will enable you to view your funds, see your interest being applied, and move your funds to other accounts.

You can save more effectively when you have a goal or a target in mind. E.g. I'd like to save £4,000 for a holiday, or I'd like to aim to save a £10k chunk of capital for investment. Saving is effected by your state of mind, as it helps you control your spending on items that are not really important to you. It helps you think about ways at which you can do things more efficiently, or make more money to achieve your savings goal quicker. Some savings accounts actually allow you to set up 'virtual pots'. These are great way to split your money up within your savings accounts and assign purposes e.g. 'car', 'holiday', etc.

If you are self-employed you have the opportunity to apply the same savings mentality you apply to your personal savings account, to your business. Most business bank accounts actually charge for depositing funds, paying cheques and transferring money. Not only do they charge, but they can also offer very poor levels of interest on positive balances. The best course of action is to therefore shop around. Which4u has business bank account providers that offer FREE banking for life and offer up to 6% credit interest! Savings money in your business naturally means that greater profits can be made and passed on to yourself.