SAVERS are being urged to fix their 2008-09 cash Isas now to benefit from the best savings rates for a generation.

Banks and building societies punished borrowers by raising new mortgage rates, even though Bank rate was cut by a quarter point to 5%. The flip side, however, was that they rushed to improve new deals for savers, who outnumber borrowers by seven to one.

The gap between the top savings rates and Bank rate has never been wider, according to analysis by data firm Moneyfacts.

This situation is unlikely to last as there are already signs the credit crunch is easing, experts said. It therefore makes sense to lock into an Isa rate now rather than wait until this time next year - and it is worth reviewing other savings too.

While National Savings & Investment announced it would pass on the full rate cut to its Direct Isa customers, Abbey upped the rate on its eSaver Direct account by 0.25 points to 6.5% ahead of the Bank rate cut.

Birmingham Midshires, which already had the highest one-year bond at 6.76%, raised the rate last week on its six-month scheme from 6.76% to 6.82%.

And Icesave, owned by Icelandic bank Landsbanki, increased the rate on its six-month bond by 0.10 points to 6.86% to match rival Kaupthing Edge.

Meera Patel of adviser Hargreaves Lansdown said: “It’s not cost-effective for banks to offer rates so far above base rate. They are trying to get savers in the door because of the credit crunch, but that is not sustainable over the long-term.

“We expect to see a fall in rates as soon as the next three or four weeks, but expect the cuts to be done quite quietly once they have pulled new business through the door.”

According to the Moneyfacts analysis, the highest account in December 2006, when Bank rate was last at 5%, was from Britannia’s Homesaver paying 6.3% interest. Today, the best no-catch deal is Abbey’s Esaver Direct at 6.5%.

Even when interest rates were at a peak of 15% in 1990, the average savings rate was below Bank rate at just 9.6% and the best rate on offer was 10.5%.

The best fixed-rate cash Isa is from Principality at 6.49%, although you must invest the full £3,600 Isa allowance. Skipton building society offers 6.26% fixed for a year with a minimum of £50.

If you need easy access, the top rate is currently Barclays’ Tax-haven Isa at 6.5%, although there is of course a risk that rates will be slashed in future.

Sally Gregory, of west London, took advantage of the inflated savings rates to invest her 2008-9 tax-free amount in Abbey’s mini-cash Direct Isa at 6.25% last week.

She said: “I realise it’s early but I really don’t think there will be better rates around. I came into some money and I wanted to start earning interest on it as soon as possible.”

Some economists now forecast that Bank rate will fall another percentage point to 4% a year from now, and below 4% by early 2009.

John Pattullo of Henderson Global Investors, said last week: “Credit markets have finally hit the bottom and sentiment looks to be on the way back up. The market is starting to stabilise, proof that the economic cycle cannot remain static for too long before the wheels start to turn again.”

However, while there are some great deals for new business, loyal savers are paying the price with heavy rate cuts. Britain’s biggest banks including HBOS, Alliance & Leicester, Abbey, Lloyds TSB, HSBC and RBS, which owns NatWest, have been cutting popular accounts beyond official rate reductions, according to figures from Moneyfacts.

Alliance & Leicester slashed its Phone-Saver no notice account from 4.25% to 3.5% – a 0.75 point cut despite official rates falling just 0.50 points since December, while Abbey cut its nonotice Branch Saver account for some customers from 4.15% to 3.55% - a 0.6 percentage point reduction.

Halifax launched new accounts such as the Websaver in January, but soon passed on a higher than Bank rate cut of 0.40 points after it fell in February and passed on cuts of up to 0.65 points on its Saver Reward instant-access account for some customers.

Patel added: “Savers who do not have fixed-rate accounts are advised to keep a close eye on their rates. If your account is consistently cut by more than the bank rate I suggest moving to a higher-paying account.”

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