CASH is king for nervous investors and lenders have been increasing savings rates amid problems securing funds on the money markets.

Fixed-rate savings have proved particularly competitive as they give institutions a guarantee that they will have the funds for a set time.

However, Birmingham Midshires and Bank of Cyprus, which recently topped the best-buy tables, have pulled their one-year fixed bonds, paying 7.17% and 7.15% respectively.

At the same time, inflation - which eats into returns - is soaring, making it difficult for savers to get a real return on their money. It hit 4.6% as measured by the retail prices index (RPI) in June.

That means that, on taxable savings and investments, basic-rate taxpayers need to achieve a gross return of 5.75% and higher-rate taxpayers 7.67% to keep pace.

Amid a continuing “flight to safety”, we hunt down the best deals for risk-averse investors.

CASH ISAS

Isas should be the first port of call for people stashing the cash, as interest rolls up free of tax. Up to £3,600 of the £7,200 annual Isa allowance can be saved in cash with one provider. The remainder can be put in an equity Isa, either with the same or another provider.

Rates above 6% are easily achievable on cash Isas: Skip-ton building society has a rate of 6.5% fixed until December 14, 2009; Julian Hodge Bank has a one-year fix at 6.5% and two-and three-year fixes at 6.4%; while Principality and West Bromwich building societies pay 6.35% fixed until April 2009 and 2010 respectively.

For those who want greater flexibility, Ruffler Bank has a 30-day notice account paying 6.11%; Icesave has a nonotice Isa yielding 6.1% and Barclays instant Isa pays 6.08%, though that includes a 12-month 1% introductory bonus.

FIXED-RATE BONDS

A rate of more than 7% is still achievable. After tax, this rate is equivalent to 5.6% for basic-rate taxpayers, but just 4.2% for top-rate taxpayers, slightly less than inflation.

Nigerian-owned First Save pays 7.10% and Icesave yields 7.06% on its one, two and three-year bonds before tax. For short-term savings, Anglo Irish Bank, the Post Office, Birmingham Midshires and Cahoot have one-year rates above 7%.

The Financial Services Compensation Scheme (FSCS) protects deposits of up to £35,000 per investor per institution. If you have more than that, try to split it between providers.

Overseas banks operating in Britain protect customers up to their local limits: the Icelandic authority, for example, protects the first £16,500 of savers’ money with Icesave. Under a “top-up” scheme, the FSCS pledges to pay the difference.

INDEX-LINKED SAVINGS CERTIFICATES

Savings certificates, from Treas-ury-backed National Savings and Investments (NS&I), guarantee to beat inflation.

Anyone can invest £100 to £15,000 per issue. The certificates pay a guaranteed fixed rate of interest plus RPI over three or five years tax-free.

Current issues guarantee to beat inflation by 1%, giving grossed-up rates of 1.25% above inflation for basic-rate taxpayers and 1.67% above RPI for higher-rate taxpayers.

Savers can cash in their certificates at any time, but need to hold them for at least a year to benefit from index-link-ing perks. The fixed rates increase each year so to get the best return hold them for the full term.

MONEY MARKET FUNDS

Money market funds are an alternative to traditional cash accounts. These invest in deposit accounts and short-term debt issued by other institutions.

They use your cash to buy the debt, so you are in effect lending to the underlying bank, and the loan repayments are paid as income.

Banks are having to pay a higher rate of interest on their short-term debts, which has pushed up the income from these funds: Threadneedle UK Money has the highest current yield at 6.08%, figures from financial-data firm Trustnet show, followed by F&C Sterling Enhanced Cash at 5.7% and Fidelity Cash at 5.49%.

These funds offer greater diversification than a deposit account, as they are exposed to more than one institution: the fund manager of a money market fund typically takes around 50 positions in deposit accounts and other cash-like securities to beat their bench-mark.

Be warned, though: not all cash funds are the same. Some invest in fairly risky assets, and the Threadneedle fund, an investment-style scheme, has lost 4.2% in capital value over the past year, while F&C’s fund is up just 0.7%.

In contrast, the Treasury-style Fidelity fund, the largest cash fund, has risen 4.5%.

The FSCS protects up to £48,000 of investors’ money in money market funds.