The collapse of interest rates has stranded many older people who were relying on income from their savings to boost pensions. The drop from up to 7% return a couple of years ago down to a miserly 0.25% for many accounts is a massive loss of income for many people.

There have been suggestions about getting rid of income tax on earnings from savings for older people, but frankly this would make little difference - the income is so low that making it tax-free is hardly worth the effort.

The oddity is that the over 50s hold the great bulk of savings in the UK, and one might have thought that the banks and building societies would be keen to get their hands on this money. Talking to older people, it seems that quite a number of them have decided that it makes more sense to take their savings and to pass them on to their children,  in the form of deposits for house purchase. Buying a property at what might be the bottom of the market probably offers a better return than a savings account in the long run - but does little to help those who have relied on the income from savings in the short run. I think it was Maynard Keynes who said that, in the long run, we are all dead. If it wasn’t, then it should have been.

Just looking at returns on general savings accounts today (23rd March 2009), then some of the best rates for instant access are 3.0% (Abbey, and Alliance and Leicester, both part of Santander), 3.0% at Sainsburys (Bank of Scotland handle this) 2.85% from Egg (Citibank) and 2.5% from ING. If you are happy to tie up money for a period, then you can get 4.1% from ICICI for two years, or 3.75% from the AA for one year, or 3.5% with a 90 day notice from Firstsave.

Turn to the offerings for the over 50s, and SAGA offer 3.45% for two years, 3.2% for one year, then Coventry Building Society are at 2.75% but with some conditions, while for instant access without conditions, Vernon Building Society offer 2.5%. No, I hadn’t heard of them either, and this is a branch account, so not much use unless you live around the Stockport area. A bonus with this account is the offer of a free bouncy castle for any charitable event you are involved in. That’s what I call a bonus.

One point which you should notice with many of these accounts - some contain a bonus other than the bouncy castle, which means that after a certain period the account will drop down to a basic variable rate. This can be a serious drop, and you need to be alert to the end of the bonus period, and think about switching the account then.

But basically, don’t look for over 50s accounts, just look for the best rates you can get, regardless of the label on the account.

So, you can generally do better than using an account which describes itself as being for the over 50s. It is an odd concept that the over 50s should get less than the optimum interest on their savings, instead of getting the best rates around.