Why the smart money is on cash Isas

Why the smart money is on cash Isas

The big fund guns are pushing Isa investors towards equities. But the intelligent money is dodging the advertising onslaught and heading for cash Isas.

Smart investors reason that there is very little tax benefit - if any - in equity Isa funds. The mini-cash Isa, where you can invest up to £3,000 between now and the end of the tax year on April 5, gives full tax relief without share or bond market worries.

On a typical 4% return, the cash Isa investor picks up all the interest; the same money into a taxed fund would produce a 3.2% return for basic rate payers and just 2.4% for those in the 40% bracket.

The interest returns stay tax - free as long as the capital is untouched - you cannot replace it. So, the Isa is the home for longer term cash. Compounded interest is also outside the tax net. Additionally, mini-cash investors can put up to £3,000 in a mini stock market Isa. As this year's level is up to £3,000 payment, savers can also switch money from past cash Isas and up to £9,000 capital from a Tessa - the very last Tessas mature next month.

There are over 300 mini cash Isas to choose from - many with a low £1 or £10 entry level and easy access.

These are the best buys for most investors, according to MoneySupermarket.com

The current top of the pops comes from Intelligent Finance, the Halifax phone and internet offshoot, which pays 4.6% interest yearly from £1.

Marks &.....continued below

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Spencer follows on with 4.5% while Kent Reliance - always a good long term bet - weighs in at 4.16%, followed by Safeway at 4.15%.

Tying up your money with a notice account appears to give no real advantage. Julian Hodge Bank with 90 days' notice and Cambridge building society with 60 days both pay 4.25%.

The best rates come from long term fixed deals. Julian Hodge pays 5.25% on a five year tie-up - West Bromwich building society has the same rate for two-year money.

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