Fixed-term UK savers face sharp drop in income Savers who locked into inflation-beating bonds three or more years ago are facing a severe drop in income when their accounts mature this year. Analysis by HSBC has found that annual returns in long-term fixed-rate savings are 2.47 percentage points lower now than they were in 2010. IN Savings This year, more than five million fixed-rate accounts paying generous annual returns will come to an end, leaving investors with a choice of savings bonds that pay out, at best, less than 3 per cent. Overall, HSBC estimates that investors will lose out on £1bn as a result of the lower rates now available from banks and building societies. Savings rates have been on a downward trajectory ever since the Bank of England chose to cut interest rates to a historic low of 0.5 per cent in March 2009, but have been driven down further in recent months as a result of attempts to kick start the economy. The Funding for Lending Scheme, which provides banks with access to cheap money with which to provide loans to individuals and small businesses, has meant that lenders are no longer so dependent on retail deposits and so are less willing to pay out a premium to attract them. As a result banks have withdrawn their best rates, replacing them with accounts that pay below-inflation returns. The biggest falls in income will be felt by three-, five- and two-year bond holders respectively. If savers opt to put their money into another fixed-rate bond, they should be prepared for returns to halve. Prices across the UK rose by 3.3 per cent on average in the year to June, according to the Bank of England's retail prices index, which includes the cost of mortgages. Consumer prices, a narrower measure of inflation, rose by 2.9 per cent over the period. The extent of the increase in prices means that basic and higher-rate taxpayers can no longer find any savings account that will match the existing rate of inflation. However, there have been a few savings rate increases and new account launches in recent weeks, which analysts say could indicate that the recent era of cuts is over. This week, Shawbrook Bank launched a new five-year fixed-rate bond paying 2.9 per cent, putting it at the top of the five-year bond market, alongside Nigerian bank First Save. Savers need to invest at least £5,000 to be eligible and can only access the account online. Shawbrook Bank is owned by RBS Equity Finance and is covered by the UK's deposit account compensation scheme, as is First Save. For savers willing to lock away their money for even longer, Skipton has launched a seven-year savings bond paying 3.5 per cent for a limited period. Savers can invest between £500 and £10,000 but must leave the money alone until September 2020 - taking a bet that interest rates will not rise much in the meantime. Investors who pay tax, and who have less money to put aside may be better off in a long-term fixed-rate individual savings account (Isa), such as Virgin's five-year Isa, which pays 2.75 per cent a year. Alternatively, premium bonds from National Savings & Investments, which is backed by the Treasury and so not subject to the £85,000 deposit protection limit imposed on other accounts in the event of failure, pay an equivalent prize fund rate of 1.5 per cent.