The problems faced by savers were highlighted today as Bank of England figures revealed that even before this month's interest rate cut banks and building societies were paying the lowest rates on offer since records began in 1995.
The official data showed that in December average interest rates on instant access accounts, "notice" accounts and short-term savings bonds had all fallen below 1%.
According to the Bank, the average return on instant access accounts slumped from 1.68% in November to 0.81% last month, while returns on notice-accounts - those where 30 or 90 days' notice is needed - and savings bonds slumped from 2.3% to 0.82%. For cash Isas the average interest rate plummeted to 2.09% from 3.83%.
These rates are likely to fall even further as the figures do not reflect the percentage point reduction on 1 December, which many savings providers only passed on this month, or last week's additional half-point base rate cut to 1.5%.
After the impact of a 20% tax rate for basic-rate taxpayers (40% for higher earners) and inflation, currently at 4.1%, millions of savers with instant access and fixed accounts effectively face losses on their cash.
"With such poor rates on offer, savers must now use their cash Isa allowance to avoid paying any tax, and although inflation should come down over the next few months, it is still a major consideration to watch out for as people will effectively be getting next to nothing," said Adrian Lowcock, senior investment adviser at independent financial adviser Bestinvest.
Meanwhile, the financial information website Moneyfacts has warned that savers should prepare for the worst after last week's 0.5 percentage point reduction took the base rate to its lowest level for 315 years.
It said that around four in 10 accounts currently offer 1% interest or less, and more than a quarter pay out less than 0.5%, while a small number of accounts offered a rate at or close to zero before last week's base rate cut.
Bank of Ireland now pays a risible 0.001% on its Card Saver account, according to Moneyfacts, while the West Bromwich building society has recently reduced the rate on its Bonus Saver account - it still pays out a bonus of 2%, but if the customer makes more than six withdrawals a year the underlying rate is now 0%.
Politicians have pledged to ride to the rescue, with both the prime minister, Gordon Brown, proposing measures in this year's budget, and the Conservative leader, David Cameron, revealing plans to abolish income tax on savings for basic rate taxpayers and to raise the annual tax allowance for pensioners by £2,000 to as much as £11,640.
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