- Savings accounts to suit your needs
- Cash ISAs
- Instant access savings

According to the Bank of England the interest offered by savings accounts hit an all time low this week. Instant access accounts, traditionally the most popular savings accounts paid out an average 0.72% in August, down slightly from 0.74% the month before. A year ago savers could expect just over 3 per cent so the decline has been quite spectacular over a relatively short period.

Point out the difference

To put this in context, a couple of percentage points difference can result in a lot less interest being paid out. For a pensioner with £50,000 sitting in the bank today they can expect to earn just £360 a year from their bank or £30 a month. A year ago the corresponding figures were £1,550 or £129. This is a serious problem for pensioners or anyone looking to draw an income from their savings. Today you would need £500,000 in the bank to create an income of just £317 a month.

Cough it up

We started 2008 with the Bank of England base rate at 5.5%, meaning that this was effectively the minimum rate at which you could borrow money. Banks were lending out deposits at rates well above this and compensating savers with interest of five per cent or more. As the economy has faltered and policy makers have been forced to stimulate demand and consumption the base rate has been cut to just 0.5% making borrowing far cheaper. This is good news if you have a mortgage or other debts but if you are a saver you can’t expect to receive much more than 0.5% on your money, at least not in an instant access account.

Interesting options

While there’s little prospect of rates returning to five per cent any time soon there are still options for those looking for decent returns. Cash ISA’s for example are tax free savings accounts, meaning that the money you stash in them will not face deductions from the Inland Revenue. As a result your cash grows faster and there are a number of accounts on the market paying three or four per cent just now.

NISA try

The problem with ISA is that you can’t simply transfer all your savings to the account at once. At the moment savers can only deposit £3,600 a year in cash and while this will soon be raised to £5,100 it’s still not an ideal option for anyone looking for income from their savings. These accounts often come with restrictions too, meaning that to receive the headline rate you will need to make regular deposits or limit your withdrawls.

Income hunter

If you’re looking for an income then a good bet may well be a fixed rate bond. They allow you to deposit large sums of money and will pay around four per cent on your cash. You can also select accounts which will pay you a monthly income. The only catch is that they require you to lock away your capital and you won’t be able to make a withdrawal if you suddenly need your money. As a result it’s a better option for anyone with multiple sources of income.

When will things improve?

Savers hoping for a return to the days of five per cent interest on an instant access account are going to have to wait. Few economists are predicting the base rate to increase this year or for most of 2010 and when it does rise it’s likely to climb slowly to start with. In the meantime hard pressed savers are going to have to get creative with their savings.