Consumers who wish to save their money without paying tax on the interest they earn should consider using an individual savings account (ISA).
That is because a consumer can put away a set amount of money during each financial year without being charged tax on the interest accrued by savings, a levy that is set at 20 per cent on a typical account.
An ISA is usually held with a bank or building society and the maximum amount that a person can save yearly is set at £10,200 for the 2010/11 financial year, £5,100 of which can be saved as cash, while the rest must come from stocks and shares
Halifax announced this week that it will be offering a cash ISA with 2.80 per cent interest for new customers and three per cent interest for those who already bank with the provider.
The ISA can be opened online or in-branch with a minimum of just £1 and there are no withdrawal penalties.
Flavia Palacios Umana, head of Halifax saving's products, said: "Now it's easier than ever for savers to establish a good savings habit and take advantage of tax free savings all year round."
The favourable interest rate only lasts for 12 months so after this time, it may be worth comparing the account with other ISAs that are on the market.
There are some things to bear in mind when you are considering an ISA.
1. Try to avoid making any withdrawals once the maximum yearly amount has been invested, as you will not be able to deposit any further funds into the account until the new financial year.
To earn the most benefit from an ISA therefore, you will not be able to access the money for at least a year, so you should ensure you can live without any funds deposited in the account.
2. If you want to switch ISAs, do not just take the cash out as you will lose the tax free benefits.
Your bank or building society should be able to set up the transfer.
3. There are different interest rates available and some ISAs will require you to make a minimum deposit or penalise you for making a withdrawal.
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