A cash ISA should be the first home for your savings. Getting a great rate of interest is important, but when shopping for an ISA there are other factors you should also consider.

You can save up to £3,600 in a cash ISA in the 2008/09 tax year and with interest from your money protected from the taxman, it makes sense to open an account sooner rather than later.

When it comes to picking the best ISA, interest rate is important as obviously you want your money to go as far as possible.

But remember that not all ISAs give you instant access to your cash. Plus, not all accounts allow you to transfer money from a previous year’s ISA without affecting your yearly allowance.

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.

The bad news is that interest rates on fixed-rate ISAs are starting to fall back slightly following several months of very attractive rates. The good news is that rates on fixed products are still more competitive than on variable ISAs.

Julian Hodge Bank currently offers three fixed-rate ISAs, allowing you to fix your interest for one-year, two-year or three-years. If you only want a one-year account you'll get 6.2% AER but the other two pay 6.1% AER. All these three accounts require you to deposit the full £3,600 upfront but on the plus side you are able to transfer your ISA savings from previous tax years.

Principality also allows you to transfer old ISA savings, and pays 6.42% AER until 5 April 2009. Again, you will need to deposit from full £3,600 upfront.

If you have less to put away, then West Bromwich Building Society pays 6.35% until 31 April 2010 on deposits of £1,000. This ISA requires 90-days notice with 90-days loss of interest should you make a withdrawal.

Fixed rate ISA	AER	Notice or term	Deposit	Introductory bonus	Transfers allowed?
Julian Hodge Bank	6.2%	One year	£3,600	n/a	Yes
Julian Hodge Bank	6.1%	two/three years	£3,600	n/a	Yes
Principality BS	6.42%	05/04/09	£3,600	n/a	Yes
West Bromwich	6.35%	05/04/10	£1,000	n/a	No
Source: Moneyfacts 07/08/08

Although interest rates on variable ISAs are not currently quite as competitive as fixed-products, they still offer people more access to their funds.

Private bank Ruffler offers a 30-day ISA paying 6.25% AER on deposits of at least £3,600. Transfers are permitted.

Barclays Banks' Tax Haven ISA pays 6.25% AER on deposits from £1, including a bonus rate of 1% for 12 months.

Or you could opt for Icesave’s easy access account priced at 6.10% which requires a deposit of at least £1,000.

For those with less to save, Egg pays 6.05% on deposits from £1.

Finally Principality offers an e-ISA paying 6% also on deposits from £1.

From 1 August, National Counties BS will offer an instant ISA paying 6.01% AER on deposit from £1.  

Variable ISAs	AER	Notice or term	Deposit	Introductory Period	Transfers allowed?
Ruffler Bank	6.25%	30 days	£3,600	n/a	Yes
Barclays	6.25%	None	£1	1% bonus for 12 months	No
Icesave	6.1%	None	£1,000	n/a	Yes
Egg	6.05%	None	£1	n/a	No
National Counties (from 1/08/09	6.01%	None	£1	n/a
Principality	6%	None	£1	n/a	Yes
Source: Moneyfacts 07/08/08

 

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