Get a mini and you won't feel exposed

Mini cash ISAs have confounded the sceptics and made saving simple
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The Independent Online

With £11.5bn invested so far this tax year in mini cash individ-ual savings accounts (ISAs), their popularity is set to exceed even last year's bonanza.

With £11.5bn invested so far this tax year in mini cash individ-ual savings accounts (ISAs), their popularity is set to exceed even last year's bonanza.

When ISAs were launched in April 1999, it was the mini cash version that particularly attracted investors. While maxi ISAs seem complicated, with their stocks and shares, cash and insurance elements, a mini cash ISA is simple to understand - a maximum of £3,000 can be invested this tax year. Even better, they promise steady growth with the absence of risk, as your money is not gambled on the stock market.

Investors are also rushing to take advantage of the £3,000 allowance that Gordon Brown, Chancellor of the Exchequer, had intended to reduce to £1,000 this tax year. In the last Budget he relented, however, and decided to keep the £3,000 allowance for another year. There are calls for this to remain permanent, since £1,000 is argued to be too little to form a useful investment.

Investing in a mini cash ISA is tax-efficient, as all interest received or credited remains untouched by the Inland Revenue. There are plenty of choices on the market for investors, with current best rates from Alliance & Leicester (7 per cent), Nationwide (6.85 per cent), and Britannia (6.85 per cent).

Although there was a certain amount of scepticism when mini cash ISAs were introduced, providers quickly realised they would prove popular. "When they were launched there was some cynicism," says Lise Bullock, public relations manager at Britannia. "But this has proved unfounded as [they have] been a great success."

If you have a mini cash ISA that you started last year, you may be tempted to invest more money with the same provider this year. But the beauty of ISAs is that you can shop around and choose a different bank or building society, which might offer a better rate.

Investors with mature Tessas (tax exempt special savings accounts) can also roll their money over into a mini cash ISA. This can be done without affecting this year's allowance, on condition that your provider transfers the money for you.

If you close your Tessa and withdraw the money so you can put it into an ISA, it will be treated as a separate transaction - you will in effect be eating into this year's allowance.

Mini cash ISAs are more flexible than Tessas, which required that you leave your capital untouched for five years. With an ISA, there is no such requirement, so you are free to withdraw your money as you wish.

CAT standard (low cost, easy access, simple terms) cash ISAs require that savers should be able to access their money without limits on the number of withdrawals made and without incurring charges on those withdrawals. This is useful if you are on a modest budget and are not sure about committing cash for a full five years.

Although you can withdraw your money within a mini cash ISA, if you invest your full £3,000 allowance and then take out £500, you cannot replace that money in the same tax year.

Risk-averse investors can also opt for National Savings products within a cash ISA. As they are part of the Government's high street savings operation, they are considered to offer the highest degree of security, although the rates may not be as competitive as those on offer from banks and building societies.

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