I haven’t been able to move for the past six months for advisers and fund managers telling me corporate bond funds are the buy of the decade — or even half-century.

Millions of pounds have poured into the sector since the 1.5-percentage point cut in Bank rate this month, which will take the average savings rate to a paltry 1.94% if it’s passed on in full (watch for announcements being sneaked out over the weekend). One in five accounts will pay less than 1%, says Moneyfacts, the data firm.

Better rates are available, of course, but you either have to throw your hat in with a foreign bank, tie up your money, or accept a short-term bonus which will plummet in 12 months.

That’s why corporate bond funds, which invest in debt issued by blue-chip companies and which now yield up to 10%, are in vogue.

People are going to get a shock if they’ve invested thinking bonds are an alternative to a savings account, though — and many people do. It’s no coincidence that some of the biggest bond funds are run by banks and are often sold (or mis-sold) when savers wander into their branch to find out what’s on offer.

The average fund has dropped 11% over the past year, with some down twice that — unprecedented for funds that are supposed to offer a relatively safe halfway house between cash and equities.

The Old Mutual corporate bond fund, for example, has plunged 28% over the past 12 months, thanks no doubt to its bank holdings.

I don’t have anything against bonds per se — in fact I invested in a Henderson fund at the beginning of October and I’m already down nearly 1%. I was investing for capital growth, though, and for the long term — not for income.

My rationale was that bonds are generally a great investment when interest rates are falling — they pay a fixed income, which becomes more attractive when returns on everything else are plunging.

And in the summer they were looking unbelievably cheap. Yields were around 9%, against a more usual 6%. Unfortunately, it was a good lesson in how cheap things can get even cheaper.

So what went wrong? In a word, Lehmans. Everyone had thought bonds were a great bet as Northern Rock and Bear Stearns had shown governments would step in to underwrite bondholders. With Lehmans, however, pretty much everyone was wiped out.

So the buzzword at the moment is safety, which is why gilts, debt issued by the UK government, have soared with the average fund up 4% over three months and 8% over six.

However, if you think we’ll eventually get out of this mess and companies will recover, corporate bonds have got to be a better bet as you can lock into a 9% return and get some capital growth when the economy starts to pick up again. I’ll be sticking with my bond fund.

Kathryn Cooper is editor of the Money section

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