BANKS could be preparing to cut their best interest rates and push up their fees, blaming fears about negative interest rates.

Santander is reported to be reviewing the market-leading three per cent savings rate on its 123 current account, paid on £3,000 up to £20,000, which has made it the UK’s most popular switching account with four million customers.

Sources were reported as saying the rate could be cut to two per cent and claiming that “the prospect of negative interest rates — or at least a cut by the Bank of England — is very much responsible”. A Santander spokesman said yesterday: "If we were to make a change to any of our banking products, including the 1I2I3 Current Account, we would write to customers providing them with 60 days’ notice.”

If Santander does cut its star rate by 33per cent, in response to a predicted 0.25 per cent cut in the base rate next week, rival banks might decide they can afford to cut the headline rates they use to attract new customers. Nationwide and TSB pay up to five per cent and Lloyds four per cent on savings, with strings attached, while RBS offers three per cent cashback on its Reward account.

As for the latest financial scare, Bank of England governor Mark Carney has already signalled that he does not believe negative rates are effective. He said last month: “If interest rates are too low – or negative – the hit to bank profitability could perversely reduce credit availability or even increase its overall price.”

Japan moved to negative rates earlier this year without obvious benefit, while the jury is out on whether the zero per cent rate at the European Central Bank and the negative rates at central banks in Switzerland, Denmark and Sweden are actually stimulating their economies.

Commentators universally agree that the UK will not charge savers to deposit their cash. Some have suggested that the move by Royal Bank of Scotland this week, in warning business customers that it might charge them if rates went negative, was really a warning to policymakers, while others saw it as softening customers up for price rises.

As for whether the UK will need more drastic medicine, Steven Forbes, managing director at Alan Steel Asset Management, points out that this week’s economic growth figures showed a better than expected performance in the second quarter, and warns of the dangers of dwelling on fears of negative rates and talking ourselves into a recession. He said: “Every opportunity to talk us down is grabbed upon, even though the UK is the fastest-growing major economy in the EU and even with a slowdown is likely to remain that way.”

Savers are already under the cosh. Since October 2008 savers have lost £160 billion in interest on their cash accounts, and since March 2009 the average instant access account has gone backwards in real terms, falling behind consumer price inflation by over 12per cent, according to Hargreaves Lansdown.

Its senior analyst Laith Khalaf says: “Savers have seen an axe taken to the income they used to enjoy on their cash holdings. But some assets have benefited from the low interest rate environment, chief amongst them the stock market and the bond market.”

So what about investors? If rates are cut next week, to hover just above zero, it will tighten the ratchet on banking profits. RBS and Lloyds are already among the worst hit stocks since the referendum vote because of their dependency on the uncertain UK economy, and ultra-low rates cannot help.

However Lloyds, like other depressed stocks in the insurance sector such as Legal & General, Aviva and Standard Life, offers an attractive dividend, and yet lower savings rates will focus investors even more on the power of shares to deliver income.

Since 1996 while income from a £10,000 cash deposit has fallen by 86per cent, dividend income from a popular equity income fund has remained steady, while £10,000 of capital has grown to almost £40,000.

The internationally-exposed FTSE-100 has defied doom-laden predictions and risen by 13 per cent in the past month while the UK-focused FT-250 has recovered early losses. Michelle McGrade at TD Direct Investing says: “Lower interest rates can potentially serve as a positive factor for exporters and those with significant overseas earnings, such as the oil and mining sectors and luxury goods manufacturers, giving traders and investors additional opportunities.”

Mr Khalaf says seven years of generally buoyant shares has been seen as due more to the ‘money-printing’ activity of central banks than to genuine economic progress - but that could be set to continue.

He adds: “Likewise the property market has been supported by low-cost mortgages, boosting house prices.”

The house price outlook is unclear, but cheap (or even cheaper) mortgages look set to continue. Skipton building society this week cut rates by up to 0.2per cent on Help to Buy mortgages.