Setback for savers as accounts are pulled

Moneysupermarket.com said the eight best interest rates savers could get had either been reduced or withdrawn altogether since the beginning of January.

The move has caused the average return paid on the top five accounts to fall from 3.04 per cent at the start of the year to just 2.89 per cent now.

The reduction in savings rates has coincided with a record increase in inflation to 2.9 per cent in December, making it almost impossible for savers to now earn a real return on their cash.

Basic rate taxpayers need to find a savings account paying at least 3.63 per cent to stop the value of their money eroding once tax and inflation are taken into account.

But consumers can now only get returns above this level by locking up their money for a period of up to five years.

In the past people have been able to get a real return by putting their money into an ISA, as tax is not charged on the interest earned on these accounts, but there is currently only one cash ISA paying a rate that is above the rate of inflation.

Kevin Mountford, head of savings at moneysupermarket.com, said: "This sudden fall in savings rates will have caught many by surprise, and coupled with December's unexpectedly sharp rise in inflation means 2010 looks like it may be a difficult year for savers.

"There has been a good deal of public debate around the treatment of savers recently, but these moves seem to suggest things won't be getting much better in the near future for this marginalised group."

But despite the low returns savers are currently earning on their money, research from Barclays showed that 37 per cent of people said their savings habits had not been negatively affected by the recession.

A further 17 per cent said the economic downturn had actually caused them to save more, mainly due to having lower mortgage repayments, not going out as much or getting a better paid job.

But a third of people admitted they were now saving less, and 14 per cent said they were not saving at all.