Savers suffering as account returns drop

Fixed rate bonds have seen the biggest reductions to the interest rates they pay, with the top return available on a one-year bond dropping by 0.65 per cent since November to 3.3 per cent, according to financial information group Moneyfacts.co.uk.

Longer-term bonds have also suffered, with market leading four and five-year fixed rate deals having their interest rates slashed by 0.6 per cent and 0.55 per cent respectively during the same period.

A best buy easy access account now pays 3 per cent, 0.35 per cent less than in November, while rates on a leading notice account are 0.05 per cent lower at 3.25 per cent.

Tax-free ISAs are the only type of savings account to buck the trend, probably due to providers increasing their rates ahead of the ISA season.

The best rate available on a variable ISA is now 3.5 per cent, 0.25 per cent more than five months ago, while the top fixed ISA rate is 0.4 per cent higher at 5 per cent.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "Providers have moved their focus to the more profitable mortgage market, with savings rates being reduced to fund mortgage cuts.

"The frozen money markets and requirements on providers to hold more capital reserves pushed savings rates upwards during last summer and autumn, but the demand for deposits appears to have eased and rates are now falling.

"Despite providers having many more savers than borrowers, it is savers who are being neglected, with those who rely on their savings to supplement their income being hardest hit."

Meanwhile, research carried out by Nationwide found that the number of people who considered themselves to be regular or occasional savers jumped to 80 per cent during February, the highest level since May 2008.

The group said the rise in savers was likely to have been caused by a combination of consumers feeling more confident, and the beginning of the ISA season when people who have not already done so rush to use up their tax-free savings allowance ahead of the start of the new tax year.

Andy Hutchinson, Nationwide's head of savings, said: "As the end of the tax year gets ever closer, we expect to see more and more people open or top up their ISAs before they lose this year's annual ISA allowance forever.

"So although we cannot say for sure, the rise in the total number of regular and occasional savers could be something to do with the fact that this time of year often sees a rise in the number of savers taking out ISAs."

One in five people said they thought it was currently a good time to save.