SIMON BAIN and FRANCIS SHENNAN

Frustrated savers are being drawn to more varied investments to try to protect their capital and income.

But advisers are warning against the hard sell of a new wave of complex structured products which may disappoint.

By the start of this week 77% of providers had cut their savings rates since the last rate cut in December, with the average rate on variable rate savings down from 4.1% to 1.29% since last January.

Credit interest on current accounts, except in fee- paying premium accounts, has crashed to zero in many products, including at the Clydesdale. A spokesman said: "A number of our current accounts do pay interest but with the fall in base rate some have fallen very low and others will have fallen to zero."

Nationwide has cut the rate on its Flexaccount from 1.5% to 0.5%, and a Barclays Additions account has dropped from 1% to 0.1%.

Michelle Slade, of Money-facts, said: "The impact of inflation and tax has meant basic-rate taxpayers currently need to earn a rate of 5.13% to break even, which is virtually impossible to find in the current market."

Until next Tuesday, Close Brothers is offering the Premium Gold Fixed-Term Deposit account paying 5% fixed on a two-year bond, but it requires a minimum of £10,000 and earlier access to the money is not allowed. ICICI offers 5.1% but guarantees the rate for only a year.

Skipton building society this week launched a new Guaranteed Double Asset Bond, which splits the investment between cash and an index-linked bond so that savers benefit from any growth in the FTSE-100 and a guaranteed return of 5.5% gross on a fixed-rate bond.

The average rate on fixed-term bonds is now 3.29%, and 98% of products were already pricing below 5% this week.

Leeds building society's "inflation buster bond" and Isa guarantee to pay the retail price index (RPI), plus a fixed interest rate. "The latest guarantee is to pay RPI plus 2%," said the society's Kim Rebecchi. Depending on what happens to inflation this year, that may or may not be an attractive deal.

Savers looking for a reasonable return with safety have very little choice, says Colin Jackson of Baronworth Investment Services (BIS).

He suggests guaranteed income and growth bonds, where the tax treatment is suited to higher-rate taxpayers, and which are guaranteed by supposedly blue-chip financial institutions.

BIS has negotiated a new one-year bond with Pinnacle paying 2.28% a year net of basic-rate tax on £100,000-plus, equivalent to 2.85% gross and 3.04% for a higher-rate taxpayer.

But in the current financial turmoil, such bonds have gone wrong. Last month Legal & General belatedly wrote to 2300 clients with more than £33m invested in its "accelerated growth investment plan 2" and "protected capital and growth plan 4", warning them that up to 20% of their investment was at risk due to exposure to Lehman Brothers.

Alan Dick, principal of Forty-Two Financial Planning in Glasgow, commented: "I am very wary of structured products. I have always said it is all very well having AAA ratings but really you have no idea what is going on in the background."

Graeme Forbes, director at Intelligent Capital, said: "We rarely use these products and believe the overwhelming majority are not good value, as well as representing some risk that people do not realise."

Barclays Wealth on Monday launches a new range of the more familiar "protected investments" offering a choice of stock market exposure or fixed income. The Regular Income Bond, a five-year investment linked to the FTSE-100, offers a fixed annual income of 7.75% or a quarterly income of 1.9%. It will return investors' full capital unless the index falls by more than 50% during its five-year term and is lower than its starting level at maturity, in which case capital is reduced on a 1:1 basis.

The Super Tracker, a three or five-year investment, provides geared exposure to the FTSE-100, returning three or five times the first 20% rise in the index up to a maximum return of 60% or 100%.

But Dick commented: "Structured products try to say you can have the return without the risk. If you are thinking about the possibility of achieving market-type returns, then now is probably one of the best opportunities you will ever have to invest in the market itself."

He advises using passively-invested unit trusts or exchange traded funds, for low cost and broad-based market exposure. "Don't try to guess whether growth or income funds will do best, though if you want to get a bit more sophisticated you could get a fund that tracks, say, the smaller company market."

Forbes added: "When stock markets return to more normal levels, structured products will be completely off the radar, it is only because of the present levels that they look attractive at all."