Sports Calendar

You can still get decent rates if you act fast. Halifax’s Guaranteed Reserve offers 6.01% fixed for six months on £25,000.

Buy bonds

Deflation is generally good news for government and corporate bonds because they pay a fixed income, which becomes more attractive as interest rates fall.

Higgins said: “Deflation, and the policy response that it elicits, should be music to bondholders’ ears. Our expectation is that 10-year UK gilt yields will tumble to just 3% next year.” That implies prices will gain 8% or 9%, as prices rise when yields fall.

Investors taking a long-term view could even look at index-linked gilts. Mike Fosberry of the broker Smith & Williamson said: “Although deflation could threaten the economy in 2009, it is arguably more likely that inflation will be the issue longer term.”

Darius McDermott of Chelsea Financial Services thinks corporate-bond funds offer even better value. They are yielding up to 13% as prices have fallen on default fears. He likes L&G Dynamic Bond, yielding 6%, and Henderson Strategic Bond, at 7.8%.

Buy equities — selectively

While falling interest rates are generally good for shares because they cut the cost of consumer and corporate debt, deflation is a different story. Companies are unable to put up prices, meaning earnings suffer.

If you take the view that deflation will be only short-lived, however, advisers said now could be a good time to buy equities.

McDermott said: “I have never seen yields on equities like it. M&S is providing a dividend of 8.8%, BP 5.7%, HSBC 8.1% and Vodafone 6.9% — even if returns remained level you would be receiving up to three times more than the rate given on cash deposits at your building society.”

Get out of sterling

Most brokers think the pound could fall further — possibly to $1.40 or even $1.38. Second homeowners could also find euro repayments costlier and should consider fixing their exchange rate — although it may be close to the bottom.

Don’t bank on gold

The yellow metal, currently $747, could lose its shine. Higgins said: “Deflation does not augur well for an asset that is supposed to be an inflation-hedge. We expect prices to fall to $550 next year.”

We fear falling rates

The prospect of plunging savings rates is a huge concern for young professionals Adam Smith and Elanor Simonis.

Smith, 23, a surveyor, and Simonis, 22, a recruitment consultant, from Islington, north London, are saving for a deposit on their first home — and are hoping to buy in a year’s time.

They are at present earning interest of 6% in a regular savings account with Lloyds TBS. “If that’s cut, it will be a worry,” he said. “We’re trying to get as much interest as possible.”

Times Recommends

• How to sell your home in a downturn
• How to boost your spending power
• Unemployment benefits explained