How to protect your savings and get the best returns

he question being asked by people across the country is: Is our money safe? And what can we do to ensure its security? People are losing trust in banks due to the current state of the banking sector and concerns about their stability.

How to play it safe

The recent financial crisis may have sparked panic in the British people, but no individual saver ever lost money as a result. This does not mean that it won't happen, so there are rules to follow in order to ensure the safety of you're hard earned cash.

The first thing to remember is that the Financial Services Compensation Scheme (FSCS) has been set up to provide savers with a guarantee that if a savings provider was to go bust savers would be covered for up to £85,000 within any one institution. It is important to remember that many banks can fall under the same institution, so if you are lucky enough to have over £85K in savings, do some research to ensure you pick the right banks and spread your money around to maximize the security of your cash.

An example of this is the HBOS group. It has an individual registration with the FSA but covers this over several brands: Halifax, Bank of Scotland, Intelligent Finance, Birmingham Midshires, Saga and The AA . You must therefore be sure to spread your money between different accounts over different institutions. It is also worth noting that the £85,000 allowance is on a per person basis, so couples can be covered for up to £170,000.

Where to find the best account for your savings

With rates still low, you should compare accounts to ensure you are getting the best returns on your investment. There is a long list of good savings accounts on offer, so checking out a comparison site is your best bet.

Individual savings accounts (Isas) should be your first port of call as they allow you to invest up to £10,680 into cash and investment ISAs every tax year and pay no tax on the returns accumulated. By comparing the savings market you can quickly find the banks/building societies paying the best isa rates, allowing you to earn the highest returns on your investment.

Where to invest the rest?

Because you are limited to investing £5,340 into a cash Isa each year (this figure increased from £3,600 in April 2010), many savers will have money in other savings accounts. Remember the golden £85K rule and keep and your money spread out between different financial institutions to reduce the risk.

Look into the combinations you can use If you have money sitting in a savings accounts that you do not need access to, it is worth considering fixed rate bonds as they tend to offer higher interest rates. These accounts don't normally allow you to make withdrawals during the term specified and you can usually only deposit a single amount when opening the account.

While fixed rate bonds tend to offer higher than average rates they are not always the best option. This is because savers fix there rate for an agreed perio of time, and while rates remain low it is very likely that they will increase in th near future, leaving you with a low rate until the bond matures.

This can work the other way, so if you fix in on a rate when the market has peaked you may be able to enjoy higher rates for longer.

What if you require easy access?

You probably won't want to lock all of your money away in a fixed rate bond so you are likely to alsorequire an easy access account allowing you to be able to retain some flexibility.

Easy access accounts are the most popular kind of savings accounts as they allow you to move money in and out as you please. These accounts usually pay decent rates on balnces o up to £2,500, with no withdrawal restrictions.

What if you want to keep all your savings in one account?

While spreading your savings across institutions is a good way of protecting them, there are two places you can invest your cash that provide unlimited guaranteed protection.

If you remember Northern Rock made the headlines for struggled to raise money to finance its lending ever since money markets seized up over the summer. The Bank of England responded by bailing them out, so Northern Rock became nationalised, giving its investors 100% protection.

Northern Rock and National Savings & Investments (NS&I) are both Government backed banks, providing their savers with complete unlimited protection. These accounts are best suited for those that are particularly cautious with their savings. However, with the exception of NS&I's index-linked savings certificates, the rates available from both institutions are not particularly competitive, a price that you may be willing to pay for guaranteed protection.

Therefore, despite the current doubts in the financial sector, even big savers can take steps to maximize both protection and returns.