Are you making the most of your savings?

There is a very real difference in wanting and needing, and even though we can live without the things we want, indulging in luxury from time to time is bliss. The trouble is - how do we pay for these extravagances without getting bogged down in debt?

The most obvious way is to wait until we have the money available, which, for the majority of us, means careful planning and taking advantage of the best savings accounts rates on offer. This may mean you have to do some homework, but when you are running your hand over the worktops in your bespoke new kitchen and making your friends go green-eyed with jealousy, you'll be glad that you did.

There has been a lot of negative press regarding saving because of the way that interest rates have plummeted, but it is still possible to get more out of your money than simply sticking it under your mattress. In fact, you can get as much as eight per cent in some of the best savings accounts. What you need to be aware of with this type of savings account is that it is highly probable that you'll only receive this rate for 12 months - because they are used to entice savers. Make a note of when your year is up and switch deals to another high interest one before this one is downgraded to earning precious little.

There are also other rules and regulations you will have to adhere to with these high interest options, such as making regular deposits; being limited to being able to make one withdrawal throughout the year or face penalties; and you must remember that this type is subject to being taxed.

The minimum that this will be is 20 per cent on the interest that you have earned, up to a massive 50 per cent depending upon your circumstances.

This means that when you are researching how to make the best use of your money when it comes to savings, you should weigh up the advantages of this high interest rate against how much you will receive in real terms and put it against the safer benefits of ISAs.

The interest rates of these saving incentives may not be as high as eight per cent; in fact it is more likely to be around the two to three per cent mark, but the interest that you earn is ring-fenced and safe from taxation.

Naturally, the limit you can put into an ISA is capped; currently the limit is £5,340 in cash, which can be topped up to £10,680 in stocks and shares, or you can invest your entire allowance of £10,680 in stocks and shares.

A fixed rate isa will give you a better rate of interest (as much as 4.35 per cent in some instances), but there are some regulations that you have to adhere to - otherwise your account may be closed. The higher the interest rate, the longer you have to have your ISA in place, and this is something that you have to decide when you open your account, so you must consider how much you think you are able to save and how long you can wait before you start discussing the benefits of granite worktops with your kitchen designer.

The benefit of having a long-term ISA is obvious: you will get that fixed rate for the duration, and if the unexpected happens and you need to access your money (more than the usual once a year allowed withdrawal) then it is possible, but you will be subjected to penalties.