In the dash for cash, make sure you get a good mini

As the deadline for investing in a mini cash ISA for this financial year approaches, it's not easy to work out which company to grace with your hard-earned cash. The bewildering array of poster, newspaper and magazine ads screaming "give us your money" certainly doesn't help. But it is possible to make an informed choice by researching on the internet, studying past performance and asking yourself for how long you want your money tied up.

As the deadline for investing in a mini cash ISA for this financial year approaches, it's not easy to work out which company to grace with your hard-earned cash. The bewildering array of poster, newspaper and magazine ads screaming "give us your money" certainly doesn't help. But it is possible to make an informed choice by researching on the internet, studying past performance and asking yourself for how long you want your money tied up.

Cash ISAs are similar to regular savings accounts, with a few essential twists. They offer a risk-free home for your money, and you can add to your account throughout the tax year until you reach the £3,000 limit. Alternatively, you can invest a lump sum of no more than £3,000. But, unlike a regular savings account, once you have taken the money out, you cannot pay it back in during the same tax year if this would put you over the £3,000 limit. To compensate for that, your interest is paid tax-free.

It's important to find a good interest rate when looking for a cash ISA. Rates on balances from £1 to £500 can range from as low as 0.85 per cent to as high as 6.75 per cent. Some providers offer preferential interest on cash ISAs to existing customers - check with your bank or building society and compare the deals they offer with those from other providers. Researching the market for rates can be difficult as there is no single source, but you can gain much information from the internet, newspapers, Ceefax and Teletext.

Rates can change over the years. A bank or building society that oºffers a high interest rate today may not be so generous in a year or so. Without the aid of a crystal ball it is impossible to say for certain which will be the best investment in the long run, but you could do worse than look at past performance. Companies that have given good returns for tax-exempt special savings accounts (Tessas) over the last five years are quite likely to do the same with cash ISAs.

According to a survey of 89 companies by Moneyfacts magazine, the top five Tessa performers are Earl Shilton, Kent Reliance and Mercantile building societies, Investec bank and Staffordshire building society (in that order). Bigger and better-known operators such as Northern Rock, Bank of Ireland and the Royal Bank of Scotland are bumping along in the bottom 10.

"We've found that mutual building societies tend to be in the top half of investment league tables and high-street banks are in the bottom half," says Rachel Thrussell of Moneyfacts. "You can't say that past performance will guarantee future returns but it can be quite a good indicator. Certainly, mutuals tend to give better returns over the long run because they don't have shareholders that they have to keep happy so they can afford to give their investors more."

Interest rates may also change according to the amount of money you have in your cash ISA. It pays to check your interest rate every six months or so on a variable-rate account. The highest return currently available in a cash ISA is from internet bank Smile, which pays 6.75 per cent on balances over £1. If you are not happy to run an account over the internet, the next best rate is from Stroud & Swindon building society at 6.60 per cent. Both of these ISAs have instant access and no penalty for transferring to another provider, which is important if you find you want to transfer to get a better rate.

Both Smile and Stroud & Swindon ISAs carry the CAT standard (low cost, easy access, simple terms), which means that they meet certain criteria laid down by the Government. Most of the big banks offer CAT-marked cash ISAs. However, because providers must follow these strict criteria to qualify, they may not give as good a rate as non-CAT-standard products, particularly if you are investing larger sums of money.

With interest rates falling, you may prefer a fixed-rate ISA although it does not give you instant access to your savings, making it very difficult to switch to a better rate. One of the highest rates available is from the Julian Hodge Bank. Savers can opt for a one- to five-year tie-in with higher rates the longer they commit. For a five-year fix, the rate is 6.05 per cent. But investors trying to cash in fixed-rate ISAs early will face a penalty.

"I wouldn't like to see anyone go for a rate that was fixed for more than three years," says Janice Thompson of Moneygro, the discount broker and independent financial adviser. "You never know what might happen and you'd be sick as a parrot if interest rates suddenly went up to 10 per cent - which they could - and you were stuck with just six. So even if you're very, very risk-averse, I would think twice about committing yourself for too long."

Cash ISAs will be available to 16- and 17-year-olds from April, and parents can take advantage of this to give their teenage children a gift, wrapped in an ISA tax shelter, which could help them pay their way through university later on. With the advantage of no tax deductions over the years, this investment will grow faster than an ordinary savings account.