As inflation exceeds its target rate by more than double, savings accounts are now suffering as they fail to compete. And, according to the research, many banks and building societies have cut their rates.

In fact, MoneyExpert.com has found that the average rate on an instant access savings account offers just 3.3 per cent interest, more than one per cent less than the current rate of inflation at 4.4 per cent.

According to Sean Gardner, director at MoneyExpert.com, the drop in rates reflects the banks’ attempts at encouraging long term savings such as bonds and regular saver plans. He said:

“The drop in instant access savings rates reflects banks’ efforts to encourage people to save for the long term. They want to know they have money to play with and can’t afford to offer as good deals to attract short-term savings that can be withdrawn without penalty at a moment’s notice.”

However, there are some exceptions to this rule, according to Moneyfacts.co.uk; Anglo Irish bank is offering a no notice rate of 6.4 per cent, suggesting it is worth shopping around, especially as MoneyExpert.com found that 2.2 million Brits swap their savings accounts every six months.

Mr Gardner commented: “Having instant access to your cash is a genuine benefit but for many savers it means you have to watch the interest rate set by your bank carefully.

“Thankfully it’s free to switch accounts so if you’re in any doubt, compare other offers and see if you can get a better deal elsewhere. It’s a savers market so don’t accept a bad rate.”

Another alternative to the traditional instant access savings account is a cash ISA that allows you to save up to £3,600 per year tax free. Most cash ISAs require little or no notice for withdrawals, and, according to Moneyfacts.co.uk, rates can be as high as 6.25 per cent.

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