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The Bank of England is widely expected to announce another cut in the base rate tomorrow, which means anyone with savings is likely to see their interest rates slashed even further.
But where does that leave you and your money? Andrew Hagger from price comparison site moneynet.co.uk says: "Unfortunately, if there is another cut tomorrow it will be another chapter in the run of bad news for savers. Variable rate savings will be cut again, so the best thing to do is lock into a relatively good fixed rate to prevent your savings from any further cuts – but do so quickly as providers with fixed-rate savings may get inundated, and their best products may disappear fairly quickly."
The downside of a fixed-rate account is that you are committing your money for a set period of time – if you try and take your money out during that period most providers will charge you a penalty for breaking the terms of the bond, which means you could lose some of the interest earned. These accounts are unlikely to be a good bet if you need ready access to your cash, but if you are happy to put your money away you need to act fast.
So where should you put your cash?
The highest paying bond at the moment is available from Indian bank ICICI. Its HiSave fixed-rate bond is paying 4.3% for 12 months on a minimum deposit of £1,000. The rate was cut from 4.65% last week but is still top of the best-buy tables. Nigerian bank Firstsave is paying 4.25% on its one-year bond. It also requires a minimum opening deposit of £1,000.
"If people feel anxious about putting their money with an overseas bank, even though they are both covered by the Financial Services Compensation Scheme, then they may want to look at rates offered by UK providers, although they will be lower," says Hagger.
He recommends the AA's one-year fixed-rate bond paying 3.85% on a minimum £500 deposit, or Birmingham Midshires which is offering 3.5% on a one-year internet bond with a deposit of just £1.
For regular savings, Barclays is offering 6% interest if you save between £20 and £250 a month for a year – but the interest drops to 3% for any month in which you make a withdrawal. There is also Principality building society's regular saver bond, which is paying 5% interest on monthly deposits between £20 and £500, but you cannot make withdrawals.
It is a similar case with tax-free Isas – the interest rates on these have plummeted in line with the base rate. However, once you consider the additional impact of paying tax on interest payments outside an Isa, making the most of this year's £3,600 allowance looks more attractive than ever. For a basic-rate taxpayer a rate of 3.5% in an Isa is the equivalent of a rate of 4.4% in a normal savings account; for a higher-rate taxpayer it is the same as earning 5.8% before tax.
"Don't give up on Isas altogether – just opt for a fixed-rate one," says Hagger. "It is still worth investing in an Isa because at least you won't be losing interest to the taxman."
Halifax is paying 4% on a four-year fixed-rate Isa with a minimum £500 deposit, and 3.7% on its three-year bond. Both accounts accept transfers from other Isa providers.
Nationwide building society's three-year fixed-rate Isa bond pays 3.5% on a £1 deposit, but does not accept transfers from other Isa providers. If you do not want to be locked in for as long as three or four years Birmingham Midshires is paying 3.5% on a minimum £500 deposit on a one-year fixed rate. It also accepts Isa transfers.
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