The countdown is on to the end of the tax year on April 5, which means savers will need to act quickly if they want to take advantage of their annual tax-free ISA allowance.
The benefits of investing in ISAs should not be underestimated. Research by MoneySupermarket reveals that savers who have used their full cash ISA allowance every year since their introduction in 1999 would be a whopping £3,800 richer than if they had stashed the same amount in an easy access savings account.
Making use of the allowance over the past 12 years would have earned basic rate taxpayers a massive £16,456.18 in interest. In comparison, opting for a basic easy access savings account would have earned them £12,623.48, resulting in £3,832.71 of lost interest.
Higher rate taxpayers would have missed out on an additional £7,372.45 by not taking advantage of this tax-free wrapper for their savings.
Kevin Mountford, head of banking at MoneySupermarket said: "Using your ISA allowance should be a priority for anyone with a savings pot in order to take advantage of the valuable tax free benefits offered. All savers who pay income tax and don't use an ISA for their savings are throwing money to the taxman that could be giving their savings pot an additional boost. Over time, a cash ISA can give a decent return with no risk and is the first port of call for savers looking to leave their savings for the longer term."
You can invest up to £5,340 into a cash ISA tax-free this year, and the same amount into stocks and shares, or you can invest the full £10,680 allowance into stocks and shares alone. But if you don't use this year's allowance by April 5, then it will be gone forever.
Here, we take a look at some of the best ISA deals currently available...
Top variable rate deals
Cheshire Building Society's recently-launched Direct Cash ISA, which pays a generous 3.06% annual interest tax-free, is the market leading variable rate ISA at the moment. This rate includes a bonus of 2.06% which is only payable until the end of September next year, so you may want to move your money once this disappears. The Cheshire Building Society account does not, however, accept transfers from existing ISAs.
Another option worth looking at is Nationwide's Online ISA, which accepts transfers from existing ISAs and pays an impressive 3.10% annual interest. This rate used to be available to those with at least £25,000 or more to invest, but Nationwide has just lowered this to £1,000. However, the account is only available to those who already have a card account with the building society.
Alternatively, ING Direct's cash ISA pays 3.00% annual interest on a minimum investment of £1, and this rate is guaranteed for a year. After the first year, however, the rate reverts to ING Direct's standard variable cash ISA rate which is 1.00%, so you may want to move your money then. This account does not accept transfers.
For those who want an account with a rate which won't suddenly drop after a year, Virgin's Easy Access E-ISA, which pays 2.85% tax-free on a minimum investment of £1, may be worth considering.
Fix for the highest returns
If you can afford to leave your money untouched for a set period of time, then the highest ISA returns are usually to be found on fixed rate accounts.
Again, Cheshire Building Society offers among the most competitive returns, paying 3.50% tax-free on its 18-month fixed-rate ISA. This account can be opened with a minimum deposit of £1,000. Withdrawals are not allowed during the fixed rate term, but you can close the account early, although you will lose 180 days' interest if you decide to do this.
If you only want to tie up your savings for a year, then Aldermore pays 3.35% on its one-year Fixed Rate ISA, which can be opened with a minimum investment of £1,000. Aldermore pays 3.80% on its three-year fixed rate ISA, which can be opened with the same amount. Both these accounts accept transfers from existing ISAs.
For those who can afford to lock up their savings for longer, Halifax pays 4.10% tax-free on its four-year Fixed ISA, and 4.20% tax-free on its five-year Fixed ISA.
Bear in mind, however, that if you are planning on investing your money in a longer-term fixed rate account, while interest rates look very competitive now, they may look less appealing in a couple of years' time when interest rates could be on their way up.
Best for transfers
Even if you have already made the most of this year's allowance, don't forget to check existing ISAs to see how much interest you are earning.
Kevin Mountford said: "If you already have an older ISA make sure you are aware of the current rate you are on, and switch to a better deal if necessary - if you don't know where to start, use a comparison site like MoneySupermarket to compare rates and apply.
"New ISA transfer rules came into force at the end of 2010 to help speed up the process. Savers should therefore check the rate, and act now if they find their existing savings are offering low returns."
Not all ISAs accept transfers from other providers, but there are plenty of competitive accounts which do. For example, NatWest and Royal Bank of Scotland's Preferential fixed ISAs pay a generous 3.90% annual interest tax-free fixed for two years on a minimum investment of £1,000.
This offer is only available for customers also transferring an ISA from another provider. However, transfers from RBS and NatWest cash ISAs only, without transfer-in from another ISA provider do not qualify.
Remember that if you are transferring your ISA savings, you mustn't withdraw the cash to pay it into a new account, otherwise your savings will lose their tax-free status. Instead, you must request a transfer form from your new provider who should then arrange the switch on your behalf.
By Melanie Wright, Financial Journalist for moneysupermarket.com
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
