September's 10 best Cash ISAs

Make the most of your hard earned cash - let it earn interest tax-free in one of these top paying Cash ISAs.

I never fail to be staggered by the astonishing range of truly dire savings accounts out there. Is anyone ever enticed by an interest rate of 0.01% AER? It appears my bank believes so.

Fortunately, if you are willing to shop around, there are better alternatives. Cash ISAs let you save up to £5,340, tax-free – so the taxman can’t get his grubby mitts on any of it (you don’t even need to declare ISAs on your tax return). And there are definitely some better rates available.

How much interest could you earn?

Say you have £1,000 to save – for every 1% in interest you’d be earning £10 per year.

With £5,000 at 3% AER you’d have £150 extra in your account in 12 months' time. And when you realise higher-rate taxpayers would have to hand £60 of it to the taxman in a standard savings account, you understand why you should make the most of your ISA allowance.

So, let’s look at the Cash ISAs currently available that allow you to access your money whenever you like.

Top easy-access Cash ISAs

The rates look quite similar. But there are some important differences.

Those with new money to save can obviously look at all three accounts, which must all be opened online.

But if you are looking for an account to transfer your existing ISA to, you are limited to the Northern Rock account, as the others do not allow transfers. This account also has the benefit of paying a straight rate (i.e. it does not give a short-lived bonus). However, this rate is variable.

The AA and ING accounts offer bonuses that will expire in a year, so you’ll need to be prepared to transfer your money elsewhere then, and you’ll need £500 to open the AA’s ISA, as opposed to £1 with ING. The ING account also guarantees its rate for 12 months.

If you’re happy tying up your cash, you’ll generally benefit from better rates – just don’t use this option if it’s cash you know you’ll need in the near future as you’ll have stiff penalties to pay.

Top one-year fixed rates

If you won’t need your cash for 12 months or more, Leeds BS offers a guaranteed rate of 3.25% AER and you only need a shiny pound coin to open one. You can also withdraw 25% of your cash without penalty, should you need to access it. However, it doesn’t allow ISA transfers.

You’ll need a hefty £500 to open a Northern Rock or Post Office account, but both providers do allow previous ISA transfers in.

Top two-year fixed rates

If you can lock your money away for two years you will benefit from even higher rates, with the Post Office offering 3.75% AER on sums of £500+ (including ISA transfers).

Cheshire BS requires £100, allows transfers and pays a healthy 3.6% AER.

But you’ll be hit with a whopping 180 days loss of interest if you need to withdraw your cash early from either account.

Longer term

Higher rates still can be obtained if you are prepared to lock your money away for longer – Halifax has a four-year fixed rate ISA Saver paying 4.3% AER on deposits of £500 or more. And Yorkshire Bank is paying 4.5% AER if you’ll lock your cash away for five years, although you will need a hefty £2,000 to open it. Both accounts allow transfers in.

But for me, these rates seem pretty poor considering the length of time these providers want to tie up our money for – they should be starting at 5% AER at the least. I’d be inclined to make two years my limit and see what’s on offer then.

How safe is your money?

Finally, for most of us, I’m sure the shock of watching well-known banks such as Northern Rock crumble in the past hasn’t worn off.

Fortunately, the Financial Services Compensation Scheme (FSCS) is in place, meaning that £85,000 of our cash is protected, should the worst happen. However, this cover is per financial institution (or group), not provider.

For most of us this limit is more than adequate. But if you’ve been squirreling your hard-earned cash away in ISAs for the past 12 years, you could have built up a surprisingly large nest egg.

So if you’re saving with two (or more) from the same group, the £85,000 limit is shared between them, meaning should the worst happen you could lose some of your savings.

Fortunately, there’s a simple solution – simply spread your money between different institutions to ensure it’s all covered. Check with the FSA’s website to find out which financial institution your provider is covered by (I have included this information in the tables above) and consider moving your cash if it is at risk.

So don’t let your money dwindle with an insulting savings rate. Switch to one of these Cash ISAs and start earning interest, tax free.

More: Three top current accounts |7 ways to slash your supermarket spend