Savers were handed a further piece of bad news when National Savings & Investments cut the rates on its top-paying accounts.
From 12 September, it will pare the rates on its three leading easy access accounts - Direct ISA, Income Bonds and Direct Saver - by up to 0.5 percentage points before tax. It cut the rates paid to its existing savers - rolling over their fixed-rate certificates and index-linked savings certificates - at the beginning of July.
Banks and building societies have been cutting rates dramatically since the government launched its Funding for Lending Scheme in July last year. The scheme is designed to help banks and building societies offer attractive rates to homebuyers and small businesses.
Until now, NS&I has kept its rates steady. But they have become too attractive and are pulling in too much money - NS&I only needs to attract enough new money to cover the amount savers withdraw. It has now announced it does not want to bring in any more money in its current financial year - which runs until next March.
John Prout, retail customer director at NS&I, says: "Historically, the amount of money savers leave with us when bonds mature is high, and currently it's especially high. But the money leaving us is at its usual level of around £12 billion a year; and we are also seeing new customers open accounts with us."
NS&I's Direct ISA falls from a tax-free 2.25% to 1.75%. Direct Saver goes down to 1.1% before tax (0.88% after tax) from 1.5% (1.2%), while its popular income bonds, favoured by savers looking for monthly income, will fall to 1.25% (1%) from 1.75% (1.4%).
Income bonds are its third most popular account after premium bonds and index-linked savings accounts. Savers have £8 billion invested in them.
The cut will reduce monthly income from around £14.50 to just over £10 a month on each £10,000 invested before tax (£8.30 after basic-rate tax).
Savers rolling over their index-linked certificates for a further term will receive inflation plus just 0.05% tax-free, while those with fixed-rate certificates get a lousy 1.6% tax-free for five years, equivalent of 2% before tax for a basic-rate taxpayer and 2.66% for a higher-rate payer.