Reza Attar-Zadeh: Savers have reasons to be cheerful as low inflation gives real returns a boost

On the face of it, 2009 looks pretty bleak with the base rate at an all-time low, but not all is as bad as it may seem. The two main factors that affect savings returns are first the rates on offer and then inflation, which erodes the value of your nest egg. When you look at these together today, savers may have something to smile about after all.

Just 12 months ago savers receiving the Bank of England base rate or above would be content they were getting a good return. Move forward to 2009 and rates on many savings accounts are coming in at 2 or 3 per cent above the base rate as the competition for cash remains as strong as ever. Coupled with the current low inflation rate, the real return (your savings rate after inflation) on your savings is even greater.

In 2008 the base rate stood at 5 per cent, but inflation (or CPI, the Consumer Prices Index) hit a high of 5.20 per cent. In real terms savers were losing money. However, with inflation now below 2 per cent and providers paying rates way over the Bank of England base rate, real returns are better than they may initially seem.

Attitudes in 2009 have also changed dramatically with regards to what savers are looking for from their savings account and provider. Where once the rate of interest on offer was the most important factor, security is now equally significant as savers look for peace of mind from their provider.

I have my own strategy for maximising returns in the current interest rate environment.

First of all, have a pot put by for your day-to-day needs. This could be a current account with a high rate of interest, but make sure that you will be able to access the money without penalty as soon as you need it.

Next, it really makes sense to have a rainy-day fund, and a good rule of thumb is to have about three months' income saved in it.

Thirdly, if you want to save for any specific items such as a new car, holiday or wedding, set aside a specific pot for this. If you have a specific timeframe for saving, so much the better, as you may be able to take advantage of longer-term accounts with higher rates of interest.

And lastly, think carefully about your longer-term financial needs and start building up a long-term fund.

That's why you need to save, so next let's deal with where: fixed or variable. Banks want to lock in savers' cash by offering high rates. However, with the next move in interest rates expected to be up, is locking in now the best idea? No-one has a crystal ball, but with the Bank of England hinting that interest rates are set to remain at low levels for some time yet, and certainly until the end of the year, taking advantage of the current high rates on offer for fixed rate bonds could be one way of beating low returns.

Variable rates are also paying rates above the current Bank of England base rate, but the majority of the best buys are bonus accounts, with an added bonus for six to 12 months.

Whether it's fixed or a variable account you're looking for, Isas are still a must-have for any taxpayer looking to take advantage of the government's tax-free savings initiative. The simple fact is: if you don't use it, you'll lose it, as the saying goes.

Better still, Isa limits are set to increase from a maximum of 7,200 (3,600 can be saved in cash) to 10,200 (5,100 can be saved in cash) from the 2010-2011 tax year. However, the over-50s will get the first bite of the Isa cherry from 6 October, when anyone aged 50 or over will be allowed to top up or open a new Isa with the increased limits.

Abbey, along with Alliance & Leicester and Bradford & Bingley, offer a range of savings options to suit all your savings needs. These include our brand new 2 Year Fixed Rate Bond offering 4.20 per cent on a minimum balance of 10,000.

Reza Attar-Zadeh is director of savings and investments at Abbey