Should my daughter open an Isa?

Q My daughter, recently turned 17, has an Alliance & Leicester first saver account, but the interest rate has recently been reduced.

Britannia appears to be offering a better rate, but are there any other accounts she should consider? Would an Isa be a suitable alternative?

DPC

A As the age limit for holding one is just 16, a cash Isa would definitely be an excellent alternative savings vehicle for your daughter. Not only do these accounts offer generally higher rates than many savings accounts but also, because interest earned is tax-free, the rate is worth even more.

For example, Alliance & Leicester's mini cash Isa pays 4.75%, which is the equivalent of 5.9% on an account liable to basic-rate tax. The one restriction is that she can pay in only £3,000 a year, though this is unlikely to be much of a handicap for a 17-year-old, unless she has some very generous relatives or an extremely lucrative part-time job!

For interest rates on cash Isas, check our compare and buy section.