Savers offered glimmer of hope

Frozen money markets in the first two thirds of 2008 resulted in savers being offered increasing rates on fixed rate bonds.

Once base rate started falling in October, rates on fixed rate bonds reduced, but the margin over base rate widened as banks continued to have concerns over each other's exposure to risk.

Historically the gap between base rate and fixed rate bonds was around 1.75%, but at it peak last month this increased to 3.15%.

Michelle Slade, analyst at Moneyfacts.co.uk, commented: "Fixed rate bonds are popular amongst savers as they can guarantee the rate of return on their money, particularly at the moment with base rate falling.

"As pressures in the money markets increased at the beginning of 2008, savers benefitted from some of the highest rates seen in recent years.

"In the last month the top rate on offer has fallen by 0.75%. This may not be good news for those looking to take out a bond, but could be one of the first signs that the reliance on short term funding might be easing.

"The real return savers are receiving on their money is also improving as inflation continues to decline. In fact, savers are effectively obtaining a higher real return now than they were last year, despite better rates being paid then, as inflation was significantly higher.

"ICICI Bank UK continues to offer the top rate for fixed rate bonds, paying 3.90% on its 12 month bond. Those looking to tie in for longer can still get a rate of 3.75% from Coventry BS on its three year bond.

"In the last week, 55% of savings changes Moneyfacts has received have been on fixed rate products, so savers need to act fast before to secure the best rate."