For highest interest rates, look online

INTEREST rates may continue to languish at an all-time low but it has become noticeable over the past 12 months that banks are offering better returns on internet-only savings accounts.

I'm not surprised by this strategy as the costs associated with traditional high street premises remain an expensive overhead for profit-conscious banks and building societies.

They pass on some of the savings by offering products online-only in the form of best-buy rates, to encourage more customers to use low-cost direct marketing channels.

This looks like good news for those who prefer to transact online. But the downside is that it has almost become the norm for such accounts to include, as part of the headline rate, a large bonus element which disappears after 12 months.

You'll need to be prepared to switch accounts once a year if you want to maintain a best-buy rate. That said, it is quite a painless and easy process to open an online savings account.

Online accounts also make it simple to manage your money, as you have the flexibility to move cash around on demand - making it easier to take advantage of getting far more interest than you would by leaving it to stagnate in your current account.

With more of the UK population now hooked up to broadband, providers will see this as a green light to move more products online, a strategy that unfortunately leaves a swathe of customers who are unable or unwilling to access the internet losing out on many best-buy deals.

Some providers still cater equally for branch-based and internet customers, a good example being the recently launched individual savings account (Isa) from Bank of Scotland, which pays a table-topping 2.8 per cent (3 per cent for current account customers). The account is available online and in branch at the same rate, can be opened with 1 and has the flexibility of unlimited penalty-free withdrawals.

With savings rates currently so poor, anyone who doesn't already have an Isa should make this their first port of call. To get a net rate of 2.8 per cent on a standard savings account would mean you having to get a gross rate of 3.5 per cent - and that's just not possible right now.

l Andrew Hagger is head of communications at Moneynet.co.uk