You could try the Brisa Sol
I have stayed there for four years in a row it is a 10 to 15 minute walk to both the Old and New Towns or 3.90 euros in a taxi i think the Brisa Sol is one of the Better hotels in the area but they are all pretty good my father in law has stayed at the palladim and it was ok

I have heard excellent reports about the Brisa Sol also but never stayed there myself Cheers Jayjan

I can recommend the Paraiso Albufeira, not far from the Brisa Sol. Massive double balcony if you opt for the apartment upgrade from a studio. Worth a look http://www.paraisodealbufeira.pt/en/index.php

Robby

We haven't actually stayed in either of these hotels, but if we were to holiday in Albufeira, we would choose either, as they are located in the old town, with lovely views.

Sol E Mar Hotel

or

Rocamar Hotel (this hotel doesn't have a pool afaik, but its in a stunning location, overlooking the beach)

The Rocamar has a stunning pool, overlooking the beach - but the Brisa Sol, Paraiso and Cerro Alagoa are all more central, if you want the best of both worlds - ie the Strip and the Old Town.

The Paraiso,as robby says, has huge balconies on the apartments and is a nice hotel.
However Thos. Cook, who use the hotel, have a big kiddies club at the hotel so be prepared for lots of children running around.