Banks offer best savings rates for seven years as they compete for new customers to beat the credit crunch

Banks and building societies, whose ability to raise money has been crippled by the credit crunch, are 'fighting' to get savers' money.

They are competing to lure customers who have spare cash to put aside with rates as high as 10 per cent.

Credit crunch: Banks and building societies are offering savings rates as high as 10 per cent in a fight to get new customers with nest eggs

The research, from the financial information firm Moneyfacts, said it has never witnessed such competition for savers' money.

But, in a cruel blow, soaring inflation is destroying most of the value of the high savings rates.

Michelle Slade, an analyst from Moneyfacts, said: 'There has been an unprecedented amount of increases following a base rate cut, and is not something we have seen before.'

The most popular type of savings account is a no-notice account, also known as an easy access account.

The best rate on this type of account is currently 6.4 per cent from Anglo Irish Bank.

Savings rates are up to 1.3 percentage points higher than December 2006, the last time that the Bank of England's base rate was five per cent.

Halifax sparked a savings war last month with the launch of a savings account offering an extraordinary rate of 10 per cent.

It is the most generous savings account on the market which does not force customers to open a current account to qualify.

The Regular Saver, which is being withdrawn on Sunday, allows people to pay between £25 and £500 a month into the account.

The account must be kept open for a year, and no withdrawals can be made.

But the higher rates are not all good news for savers if they are higher rate taxpayers.

Savers, who pay the top 40 per cent rate of tax, need to earn interest of more than 7.67 per cent to keep up with inflation.

This is because of the tax bill they must pay, a situation made worse by the fact that inflation is rising sharply.

The figure, calculated by the research firm Defaqto, is calculated using the RPI measure of inflation, currently 4.6 per cent.

There are currently no instant or easy access accounts that pay high enough rates, according to the research.

David Black, principal consultant of banking for Defaqto, said: 'It really demonstrates the advantage gained by using your annual cash Individual Savings Account allowance.'

Up to £3,600 a year can be invested into a cash Isa, which is tax-free, which are currently offering rates of up to 6.11 per cent.

Despite the tempting rates on offer, people are saving at their weakest rate in nearly 50 years, according to the Office for National Statistics.

The saving ratio, which measures how much households are putting away for the future as a percentage of their total 'available resources', is 1.1 per cent, its lowest level since 1959.