The best new ISAs for Autumn

As winter creeps in and prices creep up, make sure you protect your savings by using a tax-free ISA...

When is a current account not a current account?

When it’s a savings account of course. But according to one ‘customer advisor’ at my bank – that distinction isn’t very important anymore. As when my flatmate dropped into our local branch of Natwest recently and asked for a current account to handle the household bills, she was promptly given a savings account.

The mind boggles.

And not only was the type of account totally wrong, the interest rate on this so-called ‘savings account’ was (prepare yourself) 0.10%. That’s a solid 10p annual interest on every £100 deposited. Factor in income tax and this figure drops again to 8p.

Not exactly my idea of a savings product.

Fortunately, there is one type of account that allows you to earn interest on your savings and not pay any income tax...

Instant access ISAs

ISAs are tax-free savings accounts that accept up to £10,680 (the limit for 2011/12) of new deposits every tax year. Of this limit, up to £5,340 can be placed in a Cash ISA with one provider. Cash ISAs work in exactly the same way as regular savings accounts, apart from that they pay out interest tax-free.

So, here are the top Cash ISAs around at the moment that offer instant access to your savings...

The AA has the market leading instant access ISA, at 3.05% AER. However this deal does not accept transfers in from other ISAs. This means that your entire deposit will have to be cold hard cash made up from your £5,340 Cash ISA allowance from this tax year. And unfortunately, complex ISA rules mean that if you've already saved money into an ISA since April, you can't open this account because you can't split your current year's allowance into more than one account.

The AA account also comes packaged with a bonus rate that will drop away after a year, meaning that 12 months down the line your interest rate will fall to 1.70% and you should look to switch deals.

In fact, none of the accounts detailed above have an interest rate that will last any longer than a year. Like The AA account, the Principality deal comes with a 12 month bonus while the ING Direct and Nationwide ISAs only have their rate guaranteed for 12 months.

What does separate the Principality and Nationwide accounts though is that they do accept transfers in from other ISAs. So you would be able to shift over a balance from an old account without using up any of your annual allowance. However if you do take this route, make sure you get an ISA transfer form from your new provider, as if you withdraw the cash from your old account it will lose its tax-free wrapping and be counted as part of your current tax year's allowance.

One year accounts

Here’s how the one year fixed rate ISAs stack up:

The market leader in this sector is not even a true restricted-access account. The Leeds Building Society ISA actually allows you to withdraw up to 25% of your balance within the fixed period without losing any interest. Bargain!

However this account may not be for everyone, as like the AA account, it does not allow transfers in. The Post Office and Aldermore deals do allow you to shift balances in from old ISAs though. And it’s a good job, as the minimum deposit for both of these accounts is far higher than that of Leeds deal.

Two and three year accounts

Obviously the longer you’re prepared to stash your savings away for, the better interest rate you’ll receive. So with that in mind, here are some lengthier fixed term accounts:.

Northern Rock’s wholly online E-ISA leads the way for two year accounts, paying out at 3.55%. While The Post Office has the best three year deal – a 4.00% AER ISA.

You’ll also notice that ISAs with longer fixed terms usually allow transfers in. And alongside that, most will have a higher minimum deposit level.

Long term, inflation busting accounts

Inflation is the nemesis of any saver. Rising prices eat away at the real-life spending power of cash. This means that if you don’t secure your savings in an account paying a similar rate of interest to the current rate of inflation, you’ll be losing out.

Unfortunately with the Consumer Prices Index (CPI) measure of inflation currently running at a huge 4.5%, the range of accounts that offer protection to your nest egg have shrunk; especially when you factor in income tax.

Yet there are still a couple of tax-free inflation-proofed ISAs floating about:

As you can see, the Yorkshire and Clydesdale five-year accounts are the only two standard ISAs around at the moment that will offset the impact of inflation on your savings. However these accounts only equal the current CPI level and hence will only keep your cash on par with rising prices if inflation stays at or below its current rate.

In my opinion, five years is far too long to be locking up your cash in the current climate, especially when the minimum deposit is £2,000. The Bank of England Base Rate will rise by 2016. When it does, a whole host of improved rate ISAs will – or perhaps more accurately, should – flood the market. And if you’ve already sealed away your savings, you could find yourself stuck with a pitiful rate in a pumped up market. A far better option is to hold your nose and go for a shorter term deal that won’t keep you ahead of inflation, and then shift your cash out when interest rates rise.

However there are a few ways you can keep your savings one step ahead of inflation; despite the demise of the much-lauded NS&I bond. Read You can still beat inflation to find out more.

More: Compare ISAs with lovemoney.com | Earn up to 6% with a Junior ISA! | Increase your ISA return by 15 times | Banks are stealing your tax relief