What now for savers and borrowers?

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By Ian Pollock Personal finance reporter, BBC News Finding a decent savings account needs more research than before

For the first time since last September, the Bank of England has decided not to cut interest rates.

It means the official bank rate stays at its record low of 0.5%.

This makes it likely that mortgage rates have fallen as far as they are likely to go.

But while one-third of all instant access bank accounts now offer just 0.1% or less to their savers, rates of 3% or more can still be found elsewhere for those with cash to save.

Savings rates

Since bank rate hit 0.5%, the downward pressure has been greatest on instant access savings accounts.

Their average annual interest rate has gone down in the past month from 0.83% to 0.64%, according to the financial information service Moneyfacts.

Even more striking, a remarkable one-third of all instant access accounts - 189 - now pay 0.1% or less, a huge rise on the 67 which did so just a month ago.

The number of notice accounts that pay this derisory amount has also shot up, from just 17 to 55, amounting to 20% of all notice accounts.

But Michael Coogan of the Council of Mortgage Lenders (CML) said so far this did not seem to have deterred savers.

"We are seeing savings inflows and one of the things that we'll have to look at is how savers react when they realise how little they are getting in return in a low interest rate environment," he said.

Isas

The situation for savers is not hopeless, though - they just have to do a bit of research.

There has not been a general improvement in borrowing terms Ray Boulger, John Charcol

Banks and building societies are, in fact, very keen to have your money.

There are 44 instant access bank or building society accounts paying at least 2% interest, although many are boosted by a bonus for just the first 12 months.

The number of banks and building societies with individual savings accounts (Isas) offering more than 3% has gone up from five to 12 in the past month.

They have been marketing new, higher-paying, accounts to encourage people to use up their Isa allowances by the end of the last financial year.

The current highest variable rates are on offer from Barclays and the Natwest bank, and two small building societies - the Manchester and the National Counties.

Some fixed-rate Isas also pay well over 3%. Currently, the Leeds building society and the Halifax offer the highest rates.

If you want to earn more than 4% interest, you can still do so, with six savings accounts that require you to save a regular amount every month.

The current chart-topper is from Barclays at 5.84%.

Mortgages

People whose mortgages are on tracker deals linked to bank rate are still reaping the very substantial benefits of lower rates.

More than three million people have seen their monthly interest payments fall by about 90%, saving them hundreds of pounds a month.

And they seem to be following official advice and taking advantage of this windfall to pay off their mortgages as fast as they can.

Recent figures from the Bank of England showed that in the last three months of last year, there was a record repayment of the nation's collective mortgage debt, to the tune of £8bn.

Bank of England figures show that the average cost of a new tracker deal, for people with a 25% deposit, is now down to 3.98%.

Two-year fixed-rate deals, also for people borrowing 75% of their home's value, are now priced at an average of 4.01%.

High deposits

Life is still difficult for those who want to borrow, perhaps for the first time, but without a large deposit.

We have hit the bottom now Michelle Slade, Moneyfacts

More than two-thirds of the 1,485 mortgage deals which were on offer at the start of this month still required the borrower to put down a deposit of at least 25%, according to Moneyfacts.

In the past month, fewer mortgage deals have stipulated a 20% down payment, while a few more have required just a 15% deposit.

But Ray Boulger, of mortgage brokers John Charcol, said this did not represent a fundamental easing of lending conditions.

"There are few more deals at 85%, which is a slight increase, but there has not been a general improvement in borrowing terms," he said.

And he points out that the tougher international banking regulations, known as Basel 2, are having a big impact on lenders' behaviour.

"Any lender who offers a mortgage at 90% can offer 10 at 60%, because they have to set aside much less money by way of reserves, to protect themselves against possible defaults, for borrowers with larger deposits," he says.

Hitting the bottom

As bank rate fell in six successive months, the degree to which this was passed on to borrowers reduced.

Only 29% of lenders cut their standard variable rates (SVR) after the March cut, compared with 80% who did so in December.

And in March, only 11 passed on that bank rate cut in full, according to Moneyfacts.

The average SVR now stands at 4.64%, down slightly from 4.77% at the time of the March cut.

"We have hit the bottom now," says Michelle Slade at Moneyfacts.