A pressing need by some banks and building societies to raise cash is fuelling fierce competition in the savings market. Turmoil in the wholesale lending market has increased the cost of financing for lenders making it increasingly economic for them to chase deposits from individual savers.

Northern Rock increased the rate on its one-year bond to 6.71 per cent, up from 6.40 per cent. Several building societies have also increased rates this week on one-year savings bonds.

These rates are far higher than swap rates, the money-market instruments that determine fixed-rate pricing. The one-year swap rate, used to set the costs of fixed borrowing and based in part on corresponding Libor rates, hit 6.59 per cent yesterday.

Andrew Hagger, of Moneyfacts, the financial information website, said: “While the turmoil in the money markets is making life tough for lenders, on the flipside savers are now seeing some of the highest rates we have witnessed for almost six-and-a-half years.”

Ron Stout, of Northern Rock, said: “We are pitching our funds at a good, competitive price and we are continuing to raise money.” However, there are warnings that what is good news for savers will probably lead to greater costs for borrowers.