A week to go: what to do about Isas?

There may still be one week to go until the end of the tax year, but if you are planning to put cash into an individual savings account (Isa), you had better get your skates on.

Market leader Intelligent Finance - which pays 4.6 per cent on balances of £1 and upwards - has already closed its doors to new Isa business to ensure it can process all applications before the start of the new tax year on 6 April. There's less of a rush at Marks & Spencer Money, which will open an Isa right up until the deadline as long as you pay in with a debit card at a time (typically 8am to 6pm Monday to Friday and 9am to 1pm on Saturdays) when your payment can be immediately authorised by your debit card issuer.

Marks & Spencer Money guarantees that its Isa rate - currently 4.5 per cent - will be at least 0.5 per cent above base until April 2005.

But is it worth rushing to make the most of the annual allowance of £3,000 that anyone over 16 - who has not already invested the full Isa limit of £7,000 in a stock market-linked Isa - can save in a mini cash Isa? If you pay tax, the short answer is yes, because all the interest you earn is tax free. Compared with an ordinary savings account - where the interest is taxed - this boosts the amount of interest you get by a fifth for a basic-rate taxpayer and a tenth for a 10 per cent taxpayer.

Higher-rate taxpayers avoid tax at 40 per cent. To match the tax-free 4.6 per cent paid by Intelligent Finance, a higher-rate taxpayer would have to find a savings account paying gross, but taxable, interest of more than 7.5 per cent.

But whether non-taxpayers should consider taking out a cash Isa is less clear cut. Even though all interest for non-taxpayers is tax-free whether savings are held in an Isa or not, it can still be worth keeping savings in an Isa paying a variable rate of interest for the simple reason that interest rates on Isas are generally better than those paid on non-Isa accounts. But where fixed rates are involved, it's a different story since - provided they are prepared to commit to regular saving - both lower and non-taxpayers get the best fixed-rate deal from the non-Isa Halifax Regular Saver Account, which pays a fixed rate before tax of 6 per cent. The most competitive fixed-rate Isa - from Julian Hodge Bank - pays a fixed 5.25 per cent.

However, according to various savings experts, now is not a good time to get into a fixed-rate deal as interest rates are generally predicted to be on the increase - with the most optimistic economists suggesting that the base rate will have gone up to 5.5 per cent by this time next year.

But whatever type of interest deal you choose, there is an argument in favour of non-taxpayers sheltering savings in an Isa if there is any chance they will become a taxpayer in the future. That's because the Isa allowance is an annual limit, so if you don't make use of this year's £3,000 allowance, you lose it. The allowance is also scheduled to go down to £1,000 from the start of the 2006-7 tax year.