Millions of savers are waiting anxiously to see what happens to their interest rates after last week's surprise base-rate cut to 3 per cent, the lowest level since 1955.

Savers have been enjoying returns of 7 per cent or more amid the credit crunch, as banks tried to attract retail deposits to shore up their balance sheets. But after the Government's £50 billion bank bailout, and with the base rate now seemingly in free fall, the savings bonanza is over.

The best fixed-rate bonds disappeared within hours of the Bank of England's move last week, while accounts that track the base rate - such as the Direct Isa from National Savings & Investments, which stays 0.55 percentage points above base - fell automatically. Anglo Irish Bank, which many savers flocked to after the Irish Government announced a 100 per cent guarantee on deposits, cut its savings rates by 1.5 points, taking returns on its seven-day notice account from 6.55 per cent to 5.4 per cent.

Some experts say that rates may not plummet as far as savers fear. Kevin Mountford, of the comparison website Moneysupermarket.com, says: “The rate cut was a devastating blow for savers, who will undoubtedly suffer cuts to their savings accounts. Having said that, cash-strapped banks will still be competing to get in retail money, so some may not pass on the base rate cut in full. There will be £4.2 billion swishing around once Icesave customers have received their compensation, and I would be surprised if banks do not compete for a share of this.”

However, savers who rely on their deposits to produce an income will be panicking. With HSBC predicting that the base rate will fall to 2 per cent next year, and Capital Economics, the research consultancy, predicting 1 per cent, the prospect for cash is looking increasingly bleak.

A £10,000 lump sum saved by a basic-rate taxpayer for one year on a rate of 3 per cent will grow to £10,240 after tax. However, inflation of 5 per cent would reduce this to £9,728 (£9,671 for higher-rate taxpayers), giving a negative real return.

The era of the 7 per cent fixed-rate bond is over after the last deal was withdrawn on Tuesday. ICICI, the Indian bank, cut its one-year bond from 7.2 per cent to 6.6 per cent, while Anglo Irish Bank cut its bond from 7.05 per cent to 5.55 per cent. The best three-year bond is now with Clydesdale Bank, at 6.1 per cent, and the best nine-month return is 6.3 per cent on a minimum of £40,000 with Barclays.

For easy access to your money, good no-notice accounts include those from Scarborough Building Society - which is being taken over by Skipton Building Society - and West Bromwich Building Society, paying 6 per cent and 5.85 per cent respectively. Abbey is offering 6 per cent, including a 1 per cent bonus for the first 12 months, on a minimum deposit of £1,000.

However, experts are advising savers to wait for the dust to settle after the base-rate cut before choosing a variable-rate account.

Michelle Slade, of Moneyfacts.co.uk, the financial website, says: “The best remaining fixed rates should be snapped up now, but there is little point transferring your money to a variable-rate account at the moment. Providers usually change rates on the first day of the month, so wait until after December 1 before making your decision.”

Now that interest rates are being cut, it is more important than ever for savers to use their Isa allowance. Up to £3,600 a year can be saved without incurring tax on the interest. The best one-year fixed rate is with Halifax, which offers 5.25 per cent on deposits between £500 and £30,000, rising to 5.75 per cent on larger deposits.

Millions of homeowners on tracker mortgages, or paying their lender's standard variable rate, will find themselves with extra cash from the start of next month, since their rates will have been cut by up to 1.5 percentage points. A reduction from 7 per cent to 5.5 per cent on a £200,000 loan will bring an average monthly saving of £185. This could be put towards a nest egg or used to reduce your mortgage. Stephen Noakes, of Lloyds TSB, says: “In a falling house price environment it is important to protect the equity in your property. If your mortgage is an interest-only deal, you may want to consider making capital repayments.

“One in ten mortgage holders is saving to help to adjust to a higher rate when his or her current deal expires. You could also make overpayments to reduce the size of your loan. Most lenders allow you to overpay by up to 10 per cent each year.”

Whatever your circumstances, it may be worth considering alternative options to cash-based accounts. One of the safest alternatives is government bonds, or gilts, which offer returns of up to 5 per cent depending on when the bond matures. You can invest from £100 to hundreds of thousands with the security of knowing that the money is guaranteed.

A gilt matures on a specific date - you can choose from 2009 to 2055 - at which point the capital is returned. In the meantime, two “coupons” of interest are paid each year. For example, if you held £10,000 in the 5 per cent Treasury Gilt 2018, you would receive two coupons of £250 a year. The £10,000 will be repaid on March 7, 2018. Gilts can be bought and sold through banks or stockbrokers. For more information, see the website of the Government's UK Debt Management Office at www.dmo.gov.uk. Unfortunately, the yields on gilts reflect future interest-rate expectations, so these could fall.

Darius McDermott, of Chelsea Financial Services, the broker, says: “With cash returns looking dismal, investors should think about corporate bonds and equities as an alternative to cash and gilts.”

Corporate bonds involve lending money to companies in return for a fixed amount of interest, but this is riskier than lending to the Government, because companies are more likely to go bust and be unable to repay. Corporate bonds are complicated to buy, so it is better to invest in a well-managed fund. Mr McDermott says: “Corporate bond funds currently offer outstanding value compared with gilts - the former yielding anywhere between 5 per cent and 13 per cent.

“Yields on equities are also very high - Marks & Spencer is providing a dividend of 8.8 per cent, HSBC 8.1 per cent and Vodafone 6.9 per cent. Even if returns remained level, you would receive up to three times more than the rate given on cash deposits. As ever, a good portfolio is about balance and a mixture of assets - cash, bonds and equities.”

For equity funds, Mr McDermott recommends the Schroder Income Maximiser, yielding 9.9 per cent, and Artemis Income, at 5.8 per cent. His favourite corporate bond funds include L&G Dynamic Bond Trust, yielding 6 per cent, and the Henderson Strategic Bond, at 7.8 per cent.

Icesave payouts imminent

About 240,000 UK savers with Icesave, the collapsed Icelandic bank, will receive compensation by the end of the month.

All depositors have been sent an e-mail by the Financial Services Compensation Scheme (FSCS), explaining how the process will work. Depositors are now waiting for a second e-mail, to be sent within the next few days, inviting them to log on to their existing Icesave accounts to receive their compensation.

The process is being phased to manage the flow of payments through the system, so some customers will receive the second e-mail before others.

Icesave customers have been unable to access their funds since the bank's parent, Landsbanki, collapsed on October 7 and became nationalised. The FSCS usually guarantees deposits of up to £50,000, but in this instance it has promised to refund all deposits. Last week Alistair Darling, the Chancellor of the Exchequer, said that the rescue package would cost the Treasury £800 million.

Any Icesave customers who have not received their first e-mail should call the FSCS on 0845 7300131.

Best deals at a glance

No-notice account: Akbank Savings Account, minimum £1, 6 per cent.

Internet-only account: Tesco Internet Saver, minimum £1, 6.5 per cent.

Cash Isa: Bradford & Bingley 1 Year Fixed Rate eISA Issue 4, minimum £3,600, 6.25 per cent.

Regular saver: Abbey Super Fixed Rate Monthly Saver 3, minimum £20, 10 per cent.

Case study: Pensioners' timely fix

Richard Whitehead, 67, and his wife, Cindy, 65, locked in to fixed-rate deals two weeks ago, anticipating that returns would soon fall after a base-rate cut. “Luckily, I have a good final-salary pension,”

Mr Whitehead says. “But we do dip in to our savings, so we want to make sure that we are getting a good rate.”

The couple, above, took out a three-year fixed-rate Isa with Nationwide at 5.75 per cent, both investing the maximum allowance of £3,600. Mr Whitehead adds: “We We are looking for the least risky places for our money and feel more comfortable saving with a mutual.”

The Whiteheads, who returned to Grantham, Lincolnshire, recently after living in Cyprus, are also considering putting £15,000 each into index-linked savings certificates with National Savings & Investments. These pay a full percentage point above the retail prices index, giving a current return of 6.2 per cent.