Borrowers are close to the eye of a perfect storm with debt markets at the moment.

For a long time now the mortgage squeeze has increased the cost of borrowing money. These costs have already been passed onto the borrower.

Now the threat of an inflation explosion has forced central banks to increase official rate, dealing yet another blow to mortgagees. Earlier today the European Central Bank (ECB) had increased the official rate from four per cent to 4.25 per cent, after an inflation figure revealed this week of four per cent basically forced the central bank’s hand.

But it is not just the current inflation rate the concerns the European bank as higher costs are expected to keep upward pressure on the inflation rate for some time yet.

Finally inflation has been given the respect it deserves, and while many argue that rising interest rates will not lower inflation, it is a fundamental principle that taking money out of the economy will cool demand, even for oil, and this in turn will help to rein in inflation.

There is no denying it that this is a perfect storm for homeowners as more and more struggle with their budget. If this trend continues for the rest of the year expect the number of defaults on mortgages to rise substantially.

If there is any clear sky it is for the savers. With the higher cost of money, people with savings are able to find rewards with high interest term deposits and savings accounts.

Bank customers may have seen a change in their favour as a major UK bank reduces fees.

According a release earlier this week Barclays is offering customers an overdraft penalty of only £8.

Barclays’ managing director of current accounts Mark Parsons said the fee cut was simply a response to customer’s requests.

“We have listened to our customers and acted on this feedback by completely revamping our unauthorised overdraft service, replacing it with the new Personal Reserve,” Mr Parsons said.

“Our customers wanted a simple, clear way of managing payments when they go beyond agreed limits,” he said.

While this is a win for customers some regulatory groups have said it should have been done years ago, and it was only pressure from the Office of Fair Trade that has lead to this result.

But there might be yet another reason, with the tight liquidity markets finally forcing banks to become more customer focused.

Deposits are in greater demand as money available in the markets continues to be limited.

Banks are starting to reduce charges and increase interest rates to attract cashed-up customers.

Also banks were squarely in the firing line of public criticism as more people are forced to sell up and hand over assets to the banks. These are the same institutions that many people blamed for the economic slowdown in the first place.

By cutting charges for customers banks are once again focused on customer relations and striving for positive publicity.

No matter what the rational the objective is the same, to attract more customers and draw more deposits.

Barclays is the first to reduce charges, but it will not be long before more banks follow.

Britain’s road users have been given a reprieve from a taxation of filling the car at the petrol station.

Chancellor of the Exchequer Alistair Darling announced in his first budget, a six-month delay in implementing the two pence a litre fuel duty.

The fuel duty was scheduled to begin in April, but with crude oil prices near record highs the HM Treasury is trying to alleviate more upward pressure on pump prices.

The delay isn’t the slow death of the duty. In fact the treasury used the budget announcement yesterday to reaffirm its commitment to the proposed duty.

“The planned fuel duty increase of 2 pence per litre in April 2008 will be delayed until 1 October 2008. Main road fuel duty rates will rise by 1.84 pence per litre on 1 April 2009, and will increase by 0.5 pence per litre above inflation on 1 April 2010,” the statement said.

So, how does this affect the consumer?

Fuel and energy costs are a major chunk of a personal budget and it is also the most volatile expense.

The daily price changes can have an adverse impact on a personal budget and can be the difference in how much we save each week.

Increases in fuel prices also have a negative impact on inflation, not only does it increasing the price at the pump but it also raising the cost of food, clothing and other essentials.

Rising inflation also has a negative impact on the money that people can save.

A inflation calculator shows how our day-to-day budgets are affected by inflation and how rising costs can erodes our wealth.

Borrowers may be facing tougher times, but the outlook is definitely brightening for savers.

While mortgage providers are undoubtedly getting choosier about who they lend to (see below), savings providers are competing to pull in the cash – and to do that they need to offer better interest rates than their rivals.

But some just aren’t playing fair.

* Many offer short-term introductory bonuses to lure savers in and then slash their interest payments.

* Others impose complicated restrictions on deposits and withdrawals making it almost impossible to earn the promised rate.

* And others still offer so-called ‘guarantees’ that turn out to be not quite what they seem.

Rachel Thrussell, head of savings at Moneyfacts.co.uk, observes: “With competition hotting up, rates rising and new accounts being launched, it’s a perfect time to bag yourself a great savings deal.”

However, she warns: “But hand in hand with increased competition comes increased ‘creativity’.

“Some providers are attaching numerous terms and conditions to accounts to enable them to offer those very appealing interest rates.

“So it’s never been more important to look beyond the headline rate. If it looks too good to be true, then it probably is – unless you are willing to jump through a number of hoops.”

If you’re thinking about opening a new account, avoid these traps by looking for no-strings deals.

Several – including Bradford & Bingley’s Internet Saver, paying a market leading 6.4 per cent, Icesave Easy Access and AA Internet Access (both 6.3 per cent), Sainsbury’s Bank Internet Saver (6.25 per cent) and Yorkshire Building Society’s Internet Saver (6.2 per cent) – pay good rates without nasty surprises hidden in the small print.

Financial institutions are finding ever more ways to part us from our cash.

Price comparison site Moneysupermarket.com warns: “Brits face running a gauntlet of 112 charges across just five financial products – mortgage, current account, savings product, loan and credit card.”

The site’s managing director Stuart Glendinning adds: “It is unbelievable that five financial products can be the root of so much penalty pain.

“With so many default fees and charges in place, even the most astute consumer can fall foul.”

Mortgages are the worst offenders with a possible 51 different penalty charges, while current accounts have up to 27, credit cards have 19, loans 11 and savings accounts four.

That’s why it’s essential – particularly with mortgages where there are so many ways to get caught out – that you read every word of the small print before you sign on the dotted line.

Around 90 bank and building society variable rate savings accounts now pay at least 5.75 per cent interest.

That’s the same as the Bank of England’s base lending rate, so it might sound like a cause for celebration.

However, with around 900 accounts on the market, that’s only 10 per cent matching or beating base – and a depressing 800-plus lagging behind.

And many of the leading 90 aren’t as generous as they might seem.

Rachel Thrussell, head of savings at search engine Moneyfacts.co.uk, points out: “The rate is only part of the picture when it comes to a competitive savings account. Too many of the high paying accounts come with restrictions and conditions.”

According to Moneyfacts, more than three-quarters of the accounts paying base rate or above apply restrictions, conditions or introductory bonuses.

Many are open to old or new members or customers only, or the interest rate falls dramatically when the short-term bonus expires.

Others allow a limited number of free withdrawals, charge an interest penalty or limit the amount you can take.

Others still have age restrictions or insist the money is used for a specific purpose.

In other words, the vast majority are not worth having.

Apparently we Brits have wasted £169 billion on stuff we don’t need and won’t ever use.

According to Abbey, that ranges from clothes and shoes that never emerge from the wardrobe to china and gadgets that spend their lives in the cupboard.

I’d like to add another category of useless purchase to that list: extended warranties on electrical goods.

We moved into a new house just over a year ago and it came complete with kitchen appliances.

The guarantees have now run out, prompting manufacturer Whirlpool to make the generous offer of another 12 months of cover for a total of just £245.

That’s one offer I think I can refuse, especially since consumer organisation Which? has found that most electrical goods that fail before the end of their expected life do so within the first few months.

If we all thought twice before splashing our cash on daft purchases – whether it’s ill-fitting stilettos or an extended warranty – just think of the all the money we’d save.

Money we could use to clear expensive debts, or that stashed in a tax-free mini cash Isa (individual savings account) could grow into a valuable nest egg.

The UK’s adults are missing out on the best part of a billion pounds a year in savings interest by leaving their cash to languish in low-interest accounts.

Sainsbury’s Bank says almost £14 billion is sitting idle in poorly paying accounts.

If the owners transferred the lot to accounts paying 6 per cent annual interest, it calculates they could share an extra £800 million a year.

It’s no coincidence, of course, that Sainbury’s offers just such a 6 per cent account.

And it is good value, beating the market average by almost 2.4 per cent.

The problem is that if you’re a basic rate taxpayer, you’ll lose a fifth of that interest in savings tax, and if you pay at the higher rate, the taxman will take two-fifths.

That makes 6 per cent interest worth just 4.8 per cent or 3.6 per cent, depending on your tax bracket.

Which is why you’d be even better off with a best buy tax-free mini cash Isa.

The market leader is National Savings & Investment’s instant access, no-strings Direct Isa, paying 6.3 per cent – and because it’s tax-free, the taxman gets none of it.

Now that’s what I call a good investment.

Half of all Britons are living in cloud cuckoo land.

Apparently, a third of us are financial fantasists who believe that a higher salary, loan, windfall or inheritance – rather than sound planning – will solve all our monetary worries.

And around another one in six blithely admit they don’t give their situation any thought at all.

Excuse me for a minute while I tear out what’s left of my prematurely white hair…

When savings provider National Savings & Investments asked people to complete the sentence “I don’t worry about my current financial situation because…” the answers were predictably horrifying.

Nearly a quarter (24 per cent) said: “I expect to be earning more in the future”.

Five per cent replied: “I expect to always be able to borrow what I need” and 4 per cent went for: “I expect to receive a windfall or inheritance”.

Another 15 per cent say they simply didn’t bother to think about their finances.

And when NS&I asked people whether they had made any financial plans for their future, 55 per cent said no.

Only 11 per cent said they had a detailed plan and the rest said it was “vague” or they were “working” on it.

Dax Harkins, senior savings strategist at NS&I, points out: “There’s never any guarantee that people will earn more as they get older, so it’s really important that people start their financial planning and start saving as early as possible.”

Talk about stating the obvious – anyone who doesn’t realise that deserves to have their credit and debit cards confiscated.

My previous post about tax on children�s savings led to another question - about avoiding it!

The mum in question asks: ‘What would be the position if a parent invested money for a child and kept it in an offshore account’ If the interest was in excess of £100, would this only be taxed when it was brought back onshore? (This could be some years later).�

This is a bit of a complicated one, but in a nutshell�

Most offshore accounts pay out yearly and this is taxed as if it is part of the holder’s income. (So it’s taxed at your income tax rate, not the 20 per cent savings rate.)

However, if you choose a deferred interest or ‘roll-up’ fund, it isn’t taxable until the year you cash it in.

Either way, the holder has to pay the tax eventually.

And that is likely to be you. Offshore accounts are almost exclusively open only to adults. A rare exception is Bradford & Bingley International’s YoungSave.

Click here to learn more about saving offshore.