Savers are suffering as banks look to mortgage customers

Moneyfacts.co.uk said the returns people could earn on a one-year fixed rate bond had dived by nearly a quarter during the past nine months.

The group said the average rate paid on a one-year bond was now just 2.62 per cent, down from 3.23 per cent in October, and the lowest level since its records began in 1988.

It said someone who paid the average investment of 36,872 into a one-year fixed rate bond would now receive only 978 in interest, down from 1,209 if they had taken out the same product nine months ago.

Fixed rate bonds currently pay the highest returns on savers' cash, as providers reward people who lock up their money for a set period of time.

Around 29 per cent of savers are currently looking to take out fixed interest products, which are particularly popular with pensioners who are using their savings to generate an income.

One-year bonds have seen the sharpest fall in returns, but the average rates paid on two-year and three-year bonds are also nearly a fifth lower than they were in October, while five-year bonds have dropped from an average of 4.77 per cent to 4.12 per cent, with no providers currently offering returns of more than 5 per cent.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "Providers are focused on mortgage lending and as they strive to attract new business by reducing mortgage rates, they are in turn cutting savings rates to balance the books.

"Uncertainty over when the Bank base rate will rise means most savers are only taking a short-term view, but they are being punished by the biggest reductions in rates.

"With a change in bank base rate still predicted to be a little way off, the situation for savers is likely to get worse before it gets better."