Savers have been dealt a further blow after Government-backed National Savings & Investments (NS&I) cut the interest rate on a key account.
The group has been forced to rein back its savings offer because it is in danger of breaching the net financing target it is set by the Treasury in order to ensure a competitive market place.
In a move affecting just under 20,000 customers, NS&I has cut the interest rate on its Direct Saver accounts from 1.75% to 1.5%.
It hopes its actions will trigger a reduction in deposit levels, which have been driven higher by those "looking for safety". However, it comes at a tough time for savers, who have had trouble finding accounts to give them real returns when the Bank of England's base rate is at a record low of 0.5%.
NS&I said the build-up had been caused by a "relatively small" number of savers who have been depositing large amounts of money since November, while customers have not been taking their money out as expected.
Jane Platt, chief executive of NS&I, said: "Reducing the rate on Direct Saver was a very difficult decision. However, we have to take action to try and moderate the level of deposits into this account over the coming months."
The Direct Saver account can be opened with a £1 deposit and has a maximum investment of £2 million per person, with no set investment term. It is available to UK residents aged 16 and over.
Rachel Springall, spokeswoman for comparison website Moneyfacts, said that savers might want to remain with NS&I but choose one of its other options, such as the Direct Isa, which pays 2.5%.
She said: "Customers must remember that the Direct Saver is a no-notice account for people who want easy access to their savings.
"Based on £1 deposit, the best no-notice account on the market at present is paying 3.1% and the lowest-paying less than 1%, with the average rate at 0.91%, so while the Direct Saver may not be the best out there, it is paying more than the market average for no-notice accounts."
© 2012 Press Association