Now even best savings bonds pay under 3pc

Interest rates offered on new fixed-rate bonds have been falling fast.

The top one-year, fixed-rate bonds now pay less than half the 5.3 pc inflation rate.

The top deals come from Kent reliance and the Post office, where the deposit taker is Bank of Ireland at 2.4 pc after tax (3 pc before) - these pay just £240 interest a year after tax for every £10,000 saved.


Halifax now pays just 1.88 pc (2.35 pc) fixed for one year and Nationwide 2 pc (2.5 pc). other new one-year deals include Chelsea BS, now part of Yorkshire BS, at 2 pc (2.5 pc), while National Counties is down at 2.16 pc (2.7 pc).

But these are at the top end of deals on offer. Barclays pays just 1.4 pc (1.75 pc), giving you a measly £140 interest a year for each £10,000 in your account. the news for those willing to tie their money up for two years is also bad. the top rate is now 2.96 pc (3.7 pc) from ICICI Bank, while halifax has cut its rate to 2.76 pc (3.45 pc) and Nationwide just 2.72 pc (3.4 pc).

And things are unlikely to get better, as money markets are not pricing in a rise in base rate until the autumn of next year.

Moyeen Islam, fixed interest strategist at Barclays Capital, says: 'The money markets have priced in rates staying at these levels until September 2011.'

Three-year deals are also down, although you can still earn 3.36 pc (4.2 pc) with Coventry BS. even if you are willing to tie your money up for five years, the best you can do is 4 pc (5 pc) from ICICI Bank or Coventry BS. Barclays pays only 2 pc (2.5 pc).

If you go for a tax-free account, you cannot match inflation. the best one-year, fixed-rate deal on cash Isas comes from Coventry BS at 3.25 pc. the rate is fixed until May 31 next year, but you can only put £5,100 into the account. the deal is not available to those who want to put in less than the maximum cash Isa allowance for this tax year.

Northern Rock pays 3 pc on its Isa Breaker fixed until May 15 next year - but once the fixed rate deal runs out, your account becomes a 30 Day Isa, where the rate is currently just 1.8 pc and you have to give a month's notice to withdraw your money.

Banks continue to pay less to Isa savers than on their taxable fixed rate bonds. halifax pays 3.25 pc on its two-year, fixed-rate cash Isa, but a higher 3.55 pc before tax on its taxable fixed rate bond.

Northern Rock pays 2.9 pc on its taxable bond, but 2.75 pc on its one-year fixed rate Isa. even worse, Lloyds tSB pays as little as 2.5 pc on its two-year, fixed-rate cash Isa but 3.5 pc before tax - worth 2.8 pc after tax - to savers willing to tie their money up for two years in its fixed rate bond.

The top two-year fixed cash Isa comes from Santander and Coventry BS at 3.5 pc against 3.7 pc from ICICI Bank on its two-year fixed taxable bond. You cannot transfer past year's cash Isa money into the Coventry account.