Take interest in beating the taxman

Take interest in beating the taxman

Savers who want to keep their money out of the taxman's hands have just over two weeks left to use their annual Isa allowance. The Nationwide estimates that 10 million people have failed to use their £3,000 allowance, saving an average of just £1,000 in their cash Isa.

If you don't need instant access to your money, the Saffron Walden Building Society's 30-day notice mini cash tracker Isa pays 5.3 per cent, which includes a 0.8 per cent bonus for six months. The minimum deposit is £3,000 and the account is operated by post. The Portman building society has a 25-day notice Isa, which pays 5.25 per cent, including a 0.75 per cent bonus for the first six months.

'Before you take out a fixed-rate or a notice product, check the terms and conditions carefully,' says Rachel Thrussell, head of savings at moneyfacts.co.uk. 'Saffron & Walden and Portman, for example, charge a £30 administration fee and between 25 and 30 days' loss of interest to withdraw cash without giving the required notice on their 30 and 25-day accounts. With fixed products, some providers will not let you have access to your money at all during the fixed period, whereas others will penalise you six months' interest if you do.'

For easy access, Alliance & Leicester's Direct Isa pays 5.2 per cent, which includes a 0.7 per cent bonus until 30 April 2007. Halifax and Bradford & Bingley pay 5 per cent with no bonus on their internet and phone-based accounts......continued below

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Susan Hannums of Chase de Vere says that for those who do not want to manage their money remotely, Abbey has just launched an Isa paying 4.6 per cent, which she says is 'a very good rate for a branch based account'.

For consistently good rates, Thrussell reckons you might be better off with one of the smaller building societies. They are not always in the best buys, she says, but are generally not far below them and they tend to stay in that position. 'Don't necessarily opt for a high-profile rate with a bonus unless you're prepared to switch accounts again. In six months' time, when the bonus runs out, these accounts don't tend to sit well in the tables at all,' she says.

If you are prepared to pay regular amounts into your Isa of between £10 and £250 a month for at least 10 months of the year, the Scarborough building society's My Savings Isa pays an impressive 6 per cent. You can make one withdrawal a year.

A number of high-profile, high-interest regular savings accounts have been launched in the past few months which pay more than any Isa on offer. Bradford & Bingley launched one paying 10 per cent earlier in the year, but this is now closed to new business. Alliance & Leicester and Barclays also offer 10 per cent accounts - but you have to transfer your current account to them. For those who don't want a current account with their savings account, Halifax pays 7 per cent on its regular savings account.

However, anyone contemplating these accounts would still often be better off in the Scarborough Isa which, although it has a lower rate, ends up paying more because of its tax-free status - especially if you are a higher-rate taxpayer.