THOUSANDS of savers took their money out of Northern Rock amid fears that the bank would run out of cash, but while existing deposits in the bank are now guaranteed by the Bank of England and the Government, experts say that the events of the past week are a timely reminder for everyone to review their savings.

Sue Hannums, of AWD Chase de Vere, the independent financial adviser (IFA), says: “If the Northen Rock saga encourages people to grab a better savings rate, then it is a blessing in disguise. Savers should be aiming for a rate of 6 per cent or more.”

Savers looking for the same ironclad guarantee now available to Northern Rock customers can turn to National Savings & Investments (NS&I), the original government-backed savings bank. However, NS&I’s rates are not as competitive as some of its rivals. Its Easy Access savings account pays only 4.4 per cent on deposits of between £5,000 and £10,000, rising to 5.1 per cent for deposits of more than £50,000.

Ms Hannums says: “People may decide to move their money to NS&I for peace of mind, but it is out of the frying pan and into the fire as far as interest rates are concerned. Those who are really concerned can simply spread their savings in £30,000 chunks among many institutions offering much better returns.”

The best-paying instant-access account is currently Bradford & Bingley’s internet-only offering, which pays 6.4 per cent on a minimum deposit of £1, up to a maximum of £100,000. Sainsbury’s Bank and Ice-save offer 6.25 per cent and 6.2 per cent respectively on their “no strings” internet accounts. Anglo Irish Bank, meanwhile, pays slightly less at 6.1 per cent on its Easy Access postal and telephone account.

However, savers who have been frustrated by difficulties accessing their Northern Rock accounts online or over the telephone may prefer an account allowing face-to-face banking. The Post Office offers the most favourable returns on a branch-based account. Its Instant Saver, which is operated through 14,000 Post Office branches in the UK, pays 6 per cent on balances of more than £500.

Anyone considering switching to fixed-rate savings accounts, known as bonds, should do so quickly. Fixed-rate accounts were recently paying more than 7 per cent, but these rates lasted only a few days before being withdrawn last week.

Rachel Thrussell, of Moneyfacts, the comparison website, says: “With rates still very competitive in the fixed-rate market, savers looking to bag themselves one of these deals need to act sooner rather than later as they may not be here to stay. With such a wide choice of competitive rates to choose from, savers would be foolish not to take advantage of them.”

Anglo Irish Bank currently pays 6.9 per cent on its one-year bond, while Birmingham Midshires pays 6.91 per cent on its 11-month bond. Saga has a one-year fixed rate account for the over50s only, paying 6.92 per cent on a minimum deposit of £1, with income paid monthly.

Former Northern Rock customers may want to consider putting their savings back. The bank has promised to waive transfer charges incurred by those who withdrew their money during the crisis. It has also pledged to reimburse any interest lost, provided that the savings are invested in the same type of account with Northern Rock by October 5. The Government has promised to guarantee all accounts that were in place at midnight on Wednesday Among Northern Rock’s best rates is its online tracker account, which pays 6.31 per cent. But this includes a 1.06 per cent bonus, which is paid only if you keep your money invested for at least six months.

However, the bank’s promise to reimburse savers does not include the reinstatement of Isa allowances. Investors who withdraw Isa money from a bank or building society could lose tax benefits or face exit penalties.

Ms Hannums says: “Transferring an Isa may take longer than simply withdrawing your cash, but it will preserve your tax benefits. You can transfer not only the original investment but interest, too, without affecting your current Isa allowances.”

Recent events may have damaged the reputation of savings institutions but experts caution against reverting to hiding money under the mattress. Mark Dampier, of Hargreaves Lansdown, another IFA, says: “The effect of inflation means that your money will lose value if it is not invested. Basic-rate taxpayers need to earn 4.75 per cent interest just to keep up with inflation. For higher-rate taxpayers, it is 6.33 per cent.” A better idea than merely sitting on the cash is to invest in a pension – as long as you do not mind setting aside the money until you are at least 55. A £7,800 contribution will be worth £10,000 in your pension pot after the Government tops it up. Higher-rate taxpayers receive additional tax relief of £1,800.

CASE STUDY STAYING PUT, FOR NOW

FORTUNATELY for Nicola Copping, she was too busy to go to the bank and withdraw her savings last Friday; a move, she says, that she would have regretted, Rebecca O’Connor writes.

Nicola, a Times fashion reporter, has £9,000 saved in a Northern Rock cash mini-Isa paying 5.6 per cent and has decided to keep it there after the Government chose to back the bank. Having recently bought a house, the 28-year-old says that her savings are now more important to her than ever. “I was thinking of taking out my money, but I have been reassured,” she says. “I think I will take it out at some point but I don’t feel as panicked. I would really struggle without those savings should any work need to be done to my property.”

Sue Hannums, of AWD Chase de Vere, the independent financial adviser, recommends that Nicola moves her savings anyway because there are better-paying Isas. She suggests a Kent Reliance Building Society Isa, offering 6.21 per cent, or Abbey’s 6.25 per cent internet-only account.

Faith in financials?

Private investors now face a tricky choice between steering clear of financials or hunting for bargains in this bombed-out sector, Mark Atherton writes.

Bill Mott, of the PSigma Income fund, thinks that many financial stocks look good value after their recent drubbing and has increased his weighting in the sector to 35 per cent, though he does not hold Northern Rock.

But other fund managers, continue to give financials, especially banks, a wide berth. James Henderson, of the Lowland investment trust, has virtually nothing in UK mortgage lenders, unlike many of his peers in the UK growth and income sector.

Ken Murray, who manages the Blue Planet range of financial funds, does not see much joy in the sector right now. He is battening down the hatches and preparing to ride out the storm by not buying any new stocks and hedging against likely losses on his existing stocks.