The best cash ISAs for the new tax year

It's a new tax year and that means it's a great time to find a new tax-free home for your savings!

The new tax year has started and that means one thing – you’ve got a whole year to use up a brand new cash ISA allowance. For the 2011/12 tax year, this allowance has risen to £5,340 from last year’s £5,100, which is great news!

However, just because it’s the start of the year, that doesn’t mean you should forget all about your cash ISA until March/April 2012. No, in fact, it should mean you should take a look at your current cash ISA and consider whether you’re getting a good deal. If the interest rate is looking a little pathetic, then it’s time to take action and find one paying a far higher rate.

The good news is that many lenders launch new cash ISAs at the start of a new tax year. So here, I’m going to take a closer look at some of the best ones.

Best for easy access

If you want to be able to access your savings, you’ll want to opt for an easy access cash ISA. The table below highlights six of the best ones.

*Must have a Santander current account and pay in £1,000 a month or have a Santander mortgage or investment.

As you can see, if you’re transferring funds in from your existing ISA you certainly get a worse deal. After all, compared to the top paying rate of 3.50% offered by the Santander Loyalty Flexible ISA, the highest rate you can earn if you want to transfer funds in is 3.20% with the Halifax ISA Direct Reward. And to qualify for this rate, you will need to be a Halifax current account customer.

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That said, if you want to apply for the Santander Loyalty Flexible ISA, you already need to be a Santander customer.

You’ll also notice that all of these cash ISAs include a bonus rate or have an interest rate that is only valid for 12 months (with the exception of the Nationwide e-ISA which has a bonus that expires at the end of August 2012). So that means that once the year is up, your cash ISA is unlikely to still be competitive and you’ll need to move your funds elsewhere.

Best for fixed rates

If you’re prepared to lock up your savings for a year or more, you should be able to get an even higher rate of interest. So let’s take a look at some of the top paying fixed rate cash ISAs.

*Must have held a personal savings account with Nationwide for at least three months prior to apply.

So, as you can see, if you’re prepared to tie up your funds for longer than a year, you’ll get a better rate of interest than you would with an easy access cash ISA. Of course, if you’re happy to lock away your money for five years, you can earn an interest rate as high as 5% - and don’t forget, this is tax-free!

However, personally I would be reluctant to tie up my funds for as long as four or five years because interest rates are likely to rise in the next couple of years. As a result, even though these accounts are competitive now, they might not be two years down the line. And don’t forget, you cannot access your money until the term of the cash ISA is up.

On the plus side, all but one of the cash ISAs in the table above allow transfers in – so if you are transferring funds across from an existing cash ISA, you’ll have far more choice with a fixed rate cash ISA than an easy access cash ISA.

So if you’re after a new ISA for the new tax year – now you know where to look!

More: Get a great cash ISA | Give your child £95,000 tax-free with a Junior ISA | The pros and cons of a pension