Savers hit by sinking interest rates

Savers should check the interest rates they are earning as nearly every bank or building society has now reduced the rates on its savings accounts and Isas following last month's base rate cut.

Savers who have accounts that were in the best buy tables a month ago are unlikely to have to move their money as many of these accounts still remain at the top, even after the cuts. These savers can expect to earn up to around 5 per cent in interest on both Isas and savings accounts. But other account holders should watch out.

'Savers who have accounts that were not previously best buys are the ones that need to look at their rate. But savers shouldn't assume a base rate cut of a quarter of a per cent means a savings rate cut of the same size - many institutions have cut by more,' says Rachel Thrussell of Moneyfacts.

Lambeth and Derbyshire building societies have cut by up to 0.6 per cent, but a handful of bigger names including Abbey, Alliance & Leicester and Sainsbury's have cut by 0.5 per cent on some of their accounts. Cheltenham & Gloucester, Halifax, Intelligent Finance, Lloyds TSB and Portman have cut by up to 0.45 per cent.

'Sainsbury's cut stands out,' says Stuart Glendinning, head of savings at moneysupermarket.com. 'It has had an in-store summer sale on for its groceries, but dropped the rate on its Direct Saver account by 0.5 from 4.25 to 3.75 per cent.'

Most other institutions have cut by between 0.25-0.35 per cent on some or all of their accounts. Some of the smaller building societies didn't make their cuts until last week meaning savers were wise to wait. The only big institution still to announce new rates is Britannia, which says it will do so on 1 October.

Glendinning says savers should not assume that being in a notice account gives them a better rate. 'There are lots of awful accounts out there and the building societies are some of the worst culprits. These days there are loads of people with building society 30, 60 and 90-day notice accounts who could get a better rate with an instant access account.'

For instant access accounts the Chelsea and Scarborough building societies offer the best rate at 5 per cent - although the Chelsea rate includes a bonus and the Scarborough account requires a minimum deposit of £5,000 to get the top rate. Scottish Widows, Skipton and Capital One offer between 4.8 and 4.86 per cent including introductory bonuses on their accounts.

For notice accounts Northern Rock pays 5.05 per cent with an introductory bonus on its 120-day account and this same rate is paid by the Manchester building society on its 60-day account.

Moneysupermarket says the best internet rate comes from a new entrant to the market, Indian bank ICICI (which is registered with the FSA) offering 5.4 per cent, although it says for a household name First Direct offers a good rate at 5 per cent. Moneyfacts cites Northern Rock among its best buys for internet accounts with 5.01 per cent including a bonus, while Market Harborough pays 5 per cent on its onthedot account.

For Isas the best rate comes from Portman at 5.25 per cent - with a bonus - as well as some of the smaller institutions including Tipton & Coseley, Shepshed and Saffron Walden.

The Bank of England decided to keep rates on hold again at 4.5 per cent in its latest decision last Thursday, meaning savers should not see any further cuts in the near future.