Foot-dragging savers wooed by cash ISAs

As the financial year nears its end on 5 April, savers need to hurry to benefit from the tax breaks offered by an individual savings account (ISA).

As the financial year nears its end on 5 April, savers need to hurry to benefit from the tax breaks offered by an individual savings account (ISA).

Whether you go for equities or cash will depend on your own attitude to risk but, in terms of popularity, there is no contest.

During the 2003-04 tax year, nearly twice as much money was put in mini cash ISAs (£81.6bn) as their share counterparts (£44.2bn), according to research from the Halifax.

With investor appetite for equities muted - January's £169.7m sales are down by more than two thirds on the same time last year - the mini cash ISA still holds sway as investors are attracted by a mix of appealing rates and safety for their capital.

However, not enough people are making the most of their annual tax-free ISA allowance whether in shares or cash (£7,000 and £3,000 respec- tively). Fewer than a quarter of adults subscribe to one of these accounts each year, Halifax research shows.

Of course, a lot of people struggle to save, but many cash and equity ISAs now let you invest as little as £20 a month and, with mini cash ISAs, there are some particularly competitive deals on offer. Notably, Alliance & Leicester has recently launched its Direct ISA paying 5.4 per cent on balances of £1.

This no-notice account, only operated over the telephone or internet, has upped the ante in the instant access rate tables by pipping Abbey's ISA, which pays 5.35 per cent on balances of £1.

Higher rates are available elsewhere but have strings attached.

For example, the Lambeth and Portman building societies pay 5.65 per cent and 5.5 per cent respectively but include bonuses that drop away as well as having higher qualifying bars.

The former's rate is only available on balances of at least £1,000 and includes a six-month 0.5 per cent bonus.

You need £3,000 to qualify for the Portman's rate and its bonus, 0.65 per cent, also disappears after six months, warns Rachel Thrussell from financial analyst Moneyfacts.

Both accounts need a 45-day notice period if you want to move your cash, she adds.

The Halifax pays a very generous 5.7 per cent on its cash ISA, but you will have to tie up your money for five years and face a tough 180-day loss of interest penalty if you need to gain access to it early.