The move brings Egg's rates more closely in line with those of its competitors such as Standard Bank and Virgin, who predicted that its existing rate of 6% would be unsustainable.

Egg's chief executive Mike Harris said: "In a climate of falling interest rates, we have consistently delayed cutting our savings rates for as long as possible after the Bank of England has cut base rates in order to give our customers as large a benefit as possible."

Egg's 6% interest rate was among the highest available, prompting a flood of applications to the new bank.

Cutting back

But the move proved costly to Prudential, which is losing millions of pounds after 500,000 people signed up in the first six months.

Last month Egg restricted new account applications to Internet users only, ending telephone applications. The company says it is also ending postal applications after Monday,17 May - the same day the new interest rates come into effect.

However, BBC News Online discovered that some customers had suffered from software failures when they tried to log on to create new Internet accounts, resulting in other people's details being sent to them instead.

The company says it has now corrected the fault.

It claims to have a thousand Internet applications each day for its savings accounts.

Mortgage and loan applications can still be made by the post, telephone or the Internet.