If you're a UK taxpayer, then an ISA should be the first home for your savings. Moneywise reviews the best cash ISAs on the market.

 

 

As the end of the current tax year approaches, time is running out to make the most of your tax-free ISA allowance.

Everyone aged over 16 can save at least £3,600 in a cash ISA during the 2009/10 tax year - people born on or before 5 April 1960 have been able to save up to £5,100 in a cash ISA since October 2009. 

This increased ISA allowance will be rolled out to all savers from 6 April.

Whatever your age, a cash ISA should always be the first home for your savings as your money will grow tax free.

What’s out there?

When picking an ISA, the first thing to decide is whether you want to fix your interest rate or opt for more flexibility with a variable rate.

If you want to secure the interest rate you earn on your savings, and are happy to lock your money away for a set period of time, then a fixed-rate ISA might be for you.

However, if you want to make additional deposits beyond the upfront opening deposit, or make withdrawals, then a variable-rate ISA is probably more suitable. Just be aware that the interest you earn could decrease in line with the Bank of England's base rate (currently just 0.5%).

Variable-rate ISAs

Santander offers a cash ISA paying 3.5% AER on deposirs from £1 - and although this account has a variable rate of interest, savers will earn at least 3.5% for a year because Santander has a 12-month guarantee in place to pay 3% above the Bank of England base rate.

So, if the base rate increases during the 12-month period, then the interest rate will increase accordingly. Access is allowed but the downside is transfers are not accepted.

This product is also available through Alliance & Leicester.

Barclays has just launched a new version of its Golden ISA - this issue pays 3.1% AER, and includes a fixed-rate bonus of 1% for the first 12 months. However, transfers are not accepted.

If you do want to transfer your ISA savings from previous tax years, then Newcastle Building Society pays 3% AER on its Reward Saver ISA. This does, however, require a £500 minimum investment.

The rate includes a 1% bonus payable of the first anniversary. This account allows you to make withdrawals but requires you to give 120 days' notice.

Halifax has just launched a new variable-rate ISA paying 2.6% AER for 12 months, on a minimum balance of £1,000. Unlimited deposits are allowed but you can only make four withdrawals during the first year. Transfers are allowed.

Nationwide also accepts transfers into its Champion ISA - however, this only pays 2.5% AER. The rate does include a bonus of 1% fixed until 30 June 2011, and you can open an account from as little as £1.

Fixed-rate ISAs

Nationwide pays 4.4% AER on its three-year fixed-rate ISA, on deposits from £1 with transfers allowed.

Or Saga pays 3.9% AER on deposits from £1, with your money locked away for three years - or 3.5% if you want to fix for two years. However, if you have more than £30,000 to save then you could earn 3.5% for two years. Transfers are allowed.

Cheltehham & Gloucester pays 3.5% for two years on deposits from £100 including transfers. 

If a one-year fix is more suitable for you, The Post Office pays 3% AER on deposits from £500 (transfers allowed) while Yorkshire Bank pays the same rate on deposits from £2,000.

 

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