Bank deposits have increased by £4bn at the end of last year, but sadly, returns will be minimal from savings accounts – it’s offset mortgages that will see the best returns on your money.

New research from uSwitch.com reveals that although savers have topped up their ‘rainy day’ funds, returns could be minimal with 35% of all savings accounts offering 0.5% AER or less in interest.

More alarmingly, 23 accounts are paying a miserly 0.05% AER or less which, on the average savings balance of £2,813, consumers can expect to earn just £1.41 a year in interest.

Louise Bond, personal finance manager at uSwitch.com says: “Base rate decreases really do represent a double edged sword for consumers. Tracker mortgage customers are ‘quids in’ but savers are being penalised. With more than one in three accounts offering returns of less than 0.5%, consumers really must keep an eye on their rates and switch to a better account if they need to. Savings rates will continue to drop in line with the base rate so it’s unlikely the situation will improve in the next few months.

“While returns on savings accounts are so low, people may be tempted to look for other places to put their money as there are several options. This could involve dabbling on the stock market, offsetting savings against a mortgage or simply overpaying a mortgage. Before making any drastic moves or taking any big financial risks people should speak to a financial adviser to avoid a knee jerk reaction which could result in financial loss.”

SOURCE: USwitch.com, 27/01/09

To stay abreast of current trends, news and comment on offseting mortgages visit the Offset Mortgage Blog.