LONDON - What does the government's £37 billion (S$94 billion) taxpayer-funded bailout of Royal Bank of Scotland, Lloyds TSB and HBOS mean for savers and borrowers?

Worried savers have spent the last weeks searching for safety rather than investment returns, spreading large savings across different institutions to stay within the government's £50,000 guarantee.

Nationalised bank Northern Rock has been turning away customers while the state-backed National Savings & Investments has cut its savings rates after excess demand.

Savers have been spooked by the freezing of funds in Iceland's Icesave, where around 300,000 Britons have accounts worth some £4 billion.

'Savers need the reassurance that their money is safe and that they will get it back,' said Mr Darren Cook of online personal finance site Moneyfacts.

'If the confidence is back then savers can start making prudent decisions about returns.'

But return of confidence is also likely to mean a reduction in savings rates on offer, following last week's cut in base rates and as institutions return to the wholesale markets for some of their funding.

Rates have already started coming down from the above 7 per cent deals on offer recently, and in many cases good rates are now just available for six months rather than a year, Mr Cook said.

Anglo Irish Bank is offering a 7.05 per cent return for a one year bond, while the best offer from Birmingham Midshires of 6.85 per cent is restricted to a six-month bond, according to Moneyfacts.

For borrowers there may be some easing of the tight restrictions lenders have put on mortgages, which have seen a wide differential emerge in lending rates depending on the amount of deposit that borrowers can provide.

Last year borrowers were being offered much the same rate almost irrespective of the level of deposit.

The banks bailed out by the rescue plan are under pressure from the government to ease their lending rules to help homebuyers.

But there is little expectation of a return to the days of the 125 per cent mortgages seen at the height of the lending boom, said Mr Cook.

That said, he believes banks could start offering better deals to borrowers able to come up with 15 per cent or 20 per cent deposits.

A present borrowers wanting the cheapest mortgages have to come up with a deposit of at least 25 per cent.

Moneyfacts says the cheapest two-year fixed deal at present is the 5.49 per cent available from Market Harborough Building Society for those with a 25 per cent deposit.

Reduce that deposit to just 5 per cent and the best deal is the 6.69 per cent on offer from Scarborough Building Society.