In December 2008 the returns available on savings plunged to a record low, with accounts paying on average less than 1%, according to official figures from the Bank of England.

 

Last month the interest paid on tax-free ISA’s, bonds and notice accounts was the lowest since records began in 1995, with the average return on instant access accounts at 0.81%.

 

It looks like rates are set to fall further as the recent reduction in base rate is passed on by providers typically on the first day of the following month. Unfortunately this means that as yet both December’s 1% cut and January’s 0.5% cut have not been taken in account in the above figures.

 

However, bad news for savers should mean good news for borrowers, with mortgage interest rates being reduced and tracker products being at a 5 year low!

 

Interest on instant access accounts is the lowest it has been since November 2003, falling 1.68% to 0.81% at the end of November 2008. Notice accounts are not fairing much better with average interest rates of 0.82% in December, which is the lowest since records began in their current format. This was a steep drop of 2.3% on the previous month.

 

The biggest monthly drop was saved for ISAs, with rates going down 1.74% to 2.09%. This was the lowest average rate since ISAs were launched in April 1999.

 

The type of account offering the best return, with an average interest rate of 3.02%, at the end of December was Bonds. Again this was down on the previous month and a new record low especially when you consider that the average interest rate for Bonds in October 2007 was 6.15%!

 

Sadly, those who rely upon their savings returns, i.e. retired people, have been hit hard as it is now very difficult to get returns on your savings when you take into account inflation and tax.