Top 10 cash ISAs for 2010

With base interest rates still at a record low, choosing a savings account that will earn, rather than lose you money once inflation and the taxmanís grab of a share of your earnings has been factored in, is a difficult business.

That said, with Britain still in recession, itís encouraging that more of us are choosing to save what we can. We might not be able to put away too much but according to National Savings and Investments, over a quarter of us think we will be able to save more money this year than we did last year.

A great way of ensuring your money does work for you, is to avoid having the taxman get his hands on any of it by choosing to invest in a cash ISA rather than an ordinary savings account.

Thereís extra good news for savers who choose this route in 2010, as from April 5 you will be able to stash away up to £5,100 tax-free each year rather than the current limit of just £3,600. If you are over 50, that £5,100 limit already applies so nowís the time to act so as not to miss out on the current financial yearís allowance.

Many of us want to save but still want to be able to get hold of our money at a momentís notice if disaster strikes, so here we look at the current crop of top performing instant access cash ISA accounts.

ï    Abbey Direct ISA

This pays a top rate of 3% variable AER that includes a 12-month bonus of 1.5%. But it does require a minimum deposit of £9,000 so is suitable for those of us who already have a cash ISA in a lower performing account and are able to switch. Your current provider will be able to tell you whether they allow this. If you canít put in at least £9,000, then this is not worth considering as the rate drops to just 2%

ï    Standard Life Direct Cash ISA

Offers a slightly lower rate of 2.65% variable and also allows you to transfer money in from an existing account. The benefit over Abbeyís deal is that you can invest from just £1

ï    Barclays Golden ISA

Offers a slightly lower rate of 2.58% and again the minimum deposit is just £1. However, you cannot transfer money from an existing ISA to this account

ï    ING Directís Cash ISA

Offers 2.5% variable with a minimum £1 deposit but this rate includes a 12-month fixed bonus of 1.47% and transfers are not allowed.

ï   First Directís Cash e-ISA

Offers a respectable 2.5% rate which is fixed until the end of June 2011. This makes it ideal if you donít want to keep a close eye on when a variable rate disappears. Again, this account can be opened with just £1 and transfers from existing ISAís are allowed provided itís not from another First Direct ISA account.

If you can afford the minimum £9000, the obvious account to choose is the Abbey Direct ISA as it offers an excellent rate of 3%. But you will have to prepare to switch after the first year when the fixed bonus rate of 1.5% disappears.

For those of us who canít manage £9,000, the Standard Life Direct Access Cash ISA is a good bet offering an interest rate of 2.65%. Again, you will have to remember to keep an eye on the rate and be prepared to switch as it is variable.

The First Direct Cash e-ISA is a good bet if you want to know for certain how much interest you will get as it is fixed until mid-2011. Be careful to switch after this date though as the rate will then drop to a miserly 0.2%. Thereís also nothing to stop you switching earlier than this if ISA rates start to climb before this date.

Will I lose money by switching?

If you do transfer funds across from an existing cash ISA to one of the accounts above that allow you to switch, this doesn’t mean you will get a lower rate of interest than if you were opening a brand new cash ISA. The good part is that the two highest- paying accounts mentioned both allow you to transfer money in, so you can get a good rate and not have to keep your savings in a lot of different ISAs.

They key to not losing out on the tax-free status of your money is to make absolutely sure you NEVER take money out of an existing ISA to put into another account. Instead you should ask your new provider for a form that will allow you to transfer the money in directly.

Fixing your cash ISA

Weíve looked at some of the best performing cash ISA for those of us who may need to get our money out in a hurry. But if you know you wonít need to touch your savings, then a fixed rate cash ISA will offer you a considerably more attractive rate. How good the rate depends on how long you are prepared to tie your money away for:

One year

The Bank of Cyprus Cash ISA Bond is offering a great rate of 3.33%. You can transfer funds in from existing ISAs and you only need a deposit of £1.

Two years

The Nationwideís Two Year Fixed Rate ISA Bond pays an interest rate of 3.5%. Again, you’ll only need £1 to open the account, but once you’ve made your initial deposit, you won’t be able to make additional deposits. Transfers are permitted.

Three years

The M&S Money Cash ISA, offers a rate of 4%. You’ll will need a minimum deposit of £500 and transfers from existing ISAs are permitted.

Compare the top 10 Cash ISA accounts today.

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