Savings by the book costing interest as best buys rushed

Some 44 per cent of passbook savings accounts now charge interest at below one per cent – as regular customers seem to be getting a raw deal.

On average passbook accounts – traditionally more popular with older customers – pay 0.22 per cent less than rivals.

The average rate on such accounts is now 1.23 per cent, according to figures from MoneyExpert.com.

However, higher rates of interest are still available – despite the Bank of England rate cuts depressing returns on savings accounts – but savers may have to wait.

With the fall in interest rates, accounts offering high rates are now being overwhelmed.

Last week Tesco withdrew its 1.5 per cent bonus on its Internet Saver – with those getting on board in time having to wait up to 28 days for their account to be opened.

Market Harborough Building Society – which was offering 4.15 per cent interest on its onthedot Easy Access account - has now temporally suspended the accounts to new business due to demand.

"There are difficulties if smaller providers hit the best buy tables as they are all of a sudden flooded," said David Holmes at Yorkshire Building Society.

A step down the best buy tables, Yorkshire Building Society is offering 3.75 per cent on its Internet Saver Account.

Mr Holmes reports a spike in consumer interest for the account, but warns with interest rates falling there may be an adjustment.

However, he does predict after another Bank of England interest rate cut, "we may start to see rate creep up again".

As such people are looking for more flexibility in accounts, Mr Homes reports, and 'clean accounts' where they are not tied into a firm or reliable on bonuses for interest.

He also sees consumers increasingly wary of higher interest accounts coming from foreign providers, especially after the Icelandic crisis last year.

Sean Gardner, director of MoneyExpert, explained many people are holding on to passbook accounts because of fears from last years crises.

“When there is genuine concern about the safety and security of banks and building societies with internet operations such as IceSave going bust it is no surprise that people want proof in black and white that their money is there," he said.

“Savers who genuinely value having a passbook need to search the market and find the best deals. There are some out there although increasingly it is the case that you earn more without a passbook."