While mortgage holders have enjoyed the lowest fixed rates in nearly half a century, savers have endured measly returns that barely lifted above inflation.

But now it looks like the tables have turned as economists herald the surging yields on the fixed income money markets as a leading indicator of rising short-term rates. In response, many financial institutions have raised their term deposit cash rates, which are set according to movements on the international money markets.

Last week, First Active, which already offered among the highest term deposit rates, increased returns on two- and three-year accounts by 1.5 per cent to 5.5 per cent and 9.5 per cent respectively.

Fixed-term deposits, however, carry a serious health warning. Although many institutions have raised or plan to raise interest rates on these savings accounts, risk-prone investors must be prepared to relinquish their cash for the duration of the contract. Punitive penalties apply to those who need to access their funds - enough to wipe out any of the hard-earned gains.

But there's another reason to be wary of fixed-term deposits. Despite the welcome rise in rates, many returns offered by the banks are still sub-inflation; meaning savers are losing money to avert risk.

Permanent TSB, for example, recently raised its one-year term deposit rates by 25 basis points to 1.75 per cent from 1.5 per cent. Inflation is at 3.1 per cent so, in this instance, investors are earning negative returns. But even terms offering higher rates than that of inflation still look unattractive.

National Irish Bank recently increased its five-year term deposit rates on a minimum €5,000 account to 3.35 per cent from 3.15 per cent. By the time the term expires in 2008, the saver has made €837.50, which is whittled down to €670 after a 20 per cent DIRT take. The sum shrinks even further once inflation rises are factored in.

Of course, the returns increase the larger the sum of money and the longer the term but, in this record low interest rate environment, savers need to shop around if the risk aversion gain is to match the investment return.

Mr Hugh O'Keefe, head of marketing investment and protection with AIB bank, believes fixed rates are on an upward sloping yield, which means those opening term deposits later in the year, or early next year, are likely to earn more generous returns.

AIB's term deposit rates change each day as they are pegged to yields on the international money markets. At the time of writing the bank was offering returns of 2.25 per cent on one-year deposits and 2.7 on two-year accounts.

Oddly, the meagre incentives for deposit holders have not precipitated a fall in the national savings rate. In fact the reverse has happened. Latest figures from the Central Statistics Office show the national average saving rate in 2001 increased to 8.9 per cent from 10.3 the previous year.

Economist Mr Dan McLoughlin explains this discrepancy, saying savings are not only a function of interest rates but also of uncertainty.

And if the future markets' predictions are correct, cash hoarders are in for a brighter future. At the time of writing, futures traders were forecasting a quarter per cent hike in the US Federal Reserve's interest rates by March next year. Although this is merely an expression of traders' expectations rather than an underwritten guarantee, it is at least a light at the end of what has been a very dark tunnel.