Tax-free and still the best place to keep your cash

Cash Isas are the cream of savings accounts. Savers have lapped them up in their millions since they launched in April 1999.

The lure of their tax-free status plus frantic competition among the providers means there is more than £80 billion now invested.

Anyone over 16 can open a mini cash Isa or the cash component of a maxi Isa with up to £3,000, so long as they have not already invested more than that in an equity Isa. Though their popularity has been dented by falling interest rates, a more robust stock market and competition from National Savings & Investments premium bonds, there are still few better places for cash savings.

Tax-free returns as high as 4.7 per cent a year are available on a five-year fixed-rate deal from Halifax and there are plenty of variable rate deals around 4 per cent.

Su Hannums, savings manager at Bath-based independent financial adviser Chase de Vere, says: 'Halifax also has a one-year fixed rate Isa paying 4.25 per cent and a two-year plan paying 4.35 per cent.'

The two-year deal is equivalent to a gross rate of 5.44 per cent for a basic rate taxpayer and 7.25 per cent for a higher-rate payer.

Hannums is cautious about long-term fixed-rate deals because of the risk of missing out on higher inter est rates during the term. The best rates are usually paid for balances of £3,000 in the fixed-rate accounts, but there are also attractive easy access, variable rate deals available. Hannums favours Kent Reliance building society's Isa at 4 per cent variable from £1. She also likes Safeway (3.8 per cent), Intelligent Finance (3.9 per cent) and Furness building society (3.8 per cent).

She warns savers to look beyond headline rates or cer tain deals, however. She says: 'Northern Rock and Portman building society both pay 4.1 per cent, but they include a bonus, 0.7 per cent and 0.55 respectively, that lasts only six months. These are fine but really only for savers prepared to switch regularly.'

Investors should also watch out for any costs applied when transferring a plan, such as administration fees, typically £25, and notice or interest penalties.