Even if your finances are feeling stretched, Cash ISAs are a still a super way to save.
With household bills going up and house prices coming down, most of us are probably thinking more about making ends meet than stashing spare cash at the moment.
However, it's one of life's little ironies that, in times of economic uncertainty, it's more important than ever to have some money put by.
If you can re-think your budget and find some extra pennies, the best place to put them is in an Individual Savings Account (ISA) -- where the interest you earn on up to £7,200 worth of deposits will be protected from the clutches of the tax man.
And thanks to this tax year's new ISA rules, opening an ISA is now simpler than ever.
A Simple Way To Save
The old, complex distinctions between Mini and Maxi ISAs were scrapped at the end of the last tax year. Now, you're allowed to hold two separate ISA accounts - one for cash deposits and one for stocks and shares.
For less experienced savers and those without large sums to deposit, I'd recommend Cash ISAs. They're a lot more straightforward than Stocks and Shares ISAs, and easier to manage. You can deposit up to £3,600 per tax year in a Cash ISA, so it's a great way to start saving for a rainy day.
Even if you decide that you'd like to transfer your cash into a more complicated Stocks and Shares ISA later in the year, this is now possible -- as long as you move the whole amount you've saved to date.
Six Top Picks
Once you've made the decision to open a Cash ISA, it's a good idea to shop around for the account that offers you the best deal. Despite the Bank of England's recent base rate cut, there are still some great accounts on offer.
Here's my pick of the best Cash ISAs available now:
Company | Account | % AER | Notice | Minimum Deposit | Introductory Bonus | Transfers In |
|---|---|---|---|---|---|---|
Barclays Bank | Tax Haven ISA | 6.50% | Instant | £1 | 1% bonus for 12 months | No |
Scarborough BS | Notice ISA | 6.30% | 30 days | £1,000 | None | Yes |
National Counties BS | Guaranteed Cash ISA 2008/09 | 6.26% | Instant | £1 | None | No |
Alliance & Leicester | Direct ISA Issue 4 | 6.25% | None | £1 | 1% bonus until 31.05.2009 | Yes |
Dunfermline BS | Guaranteed 30 Cash ISA | 6.25% | 30 days | £1* | None | Yes |
Saffron BS | Cash 60 Day Notice ISA | 6.25% | 60 days | £1,000 | 0.95% bonus for 9 months | Yes |
Source: Moneyfacts
* Deposits of £1 open a branch or postal account. Deposits of £100 are required to open telephone operated accounts.
As you can see, Barclays' Tax Haven ISA is the current market leader, offering a whopping 6.50% interest on your cash. However, all of these great accounts break the 6% barrier, which is great news considering the current economic climate.
Go for the ISA that suits you best - but don't forget to consider banks' minimum deposits and required notice periods for cash withdrawals. Also, your choice of ISA may be affected by whether or not you're allowed to transfer existing ISA savings to your new account.
Potential Pitfalls
It's also worth remembering that all of the ISA rates shown in the table above are variable. This means that, although they're the best buys now, they might not be in a few months' time.
If you're the kind of person who wants to stick their money in an ISA and forget about it, take a look at an ISA from Halifax. At 6.2%, its interest rate is slightly lower than for the accounts in my table, but it's fixed for four years which might be attractive if you want to secure the interest on your savings.
Alternatively, you could keep a close eye on your ISA interest rate and, if it falls, consider switching to another, more competitive deal.
Transferring your ISA savings from one bank to another is permitted during the tax year, as long as your bank or building society allows this. The transfer process is fairly straightforward, so there's no need to stick with an account that's not making the most of your money.
Remember though, that you must fill in the correct paper work and allow your new ISA provider to handle the transfer -- simply withdrawing your money and moving it will mean you lose your tax-free ISA allowance.
Start Saving Today!
In times like these, knowing you've got a cash cushion behind you for emergencies definitely provides some peace of mind.
Cash ISAs are a great way to begin building your nest egg, or add to an existing one. Good luck with yours!
Why not visit The Motley Fool ISA Centre to find a great ISA?
More: Why You Should Open An ISA This Year | My Favourite ISA