THE Post Office Savings Bank has cut the interest rate paid to its depositors, with most rates falling by between 0.25 of a percentage point and 0.5 of a point. The cuts will affect £406 million in savings in two million basic demand deposit accounts and a further £62 million in 6,800 deposit.plus accounts, the special savings account.

The rate on demand deposits of up to £1,000 remains unchanged at 0.5 per cent. However, for deposits between £1,000 and £3,000, the rate falls from 0.75 per cent to 0.5 per cent, while the interest rate on amounts between £3,000 and £5,000 falls from 1.25 per cent to 0.75 per cent. For deposits of over £5,000, the rate falls from 2 per cent to 1.5 per cent.

The National Treasury Management Agency, which manages the savings, has also restructured the deposit account-plus interest rates to bring them more into line with other institutions. This means that savers with larger amounts face smaller reductions than those with small savings.

Previously a rate of 5 per cent was paid on savings of up to £5,000 and 6 per cent for deposits of a larger amount. Now, savings up to £5,000 will receive a rate of 4 per cent, amounts of £5,000 to £25,000 will get 5 per cent, those between £25,000 to £40,000 will receive 5.5 per cent and amounts from £40,000 to £50,000 will receive interest of 5.75 per cent.

The bank also recently reduced interest rates on its other main savings products - savings certificates and savings bonds. The savings certificates now yield 34.5 per cent after 5 1/2 years, an annual average of 5.54 per cent, which is half a point lower than the previous annual rate.

Savings bonds now yield 17 per cent after three years, or an annual rate of 5.37 per cent, a fall of one percentage point on the previous rate.