Cash ISAs have come in for their share of bad press recently, with record low interest rates offering savers very little to get excited about.

This ISA season the news is particularly bad. Thanks largely to the government’s funding for lending scheme – designed to encourage banks to lend more by giving them access to cheap funds – banks are no longer competing with each other for savers’ cash and so cash ISA rates are even worse than they have been in recent years.

As a result more people have been turning to stocks and shares ISAs. Fund house Fidelity saw savings into these types of product increase by around 40% in the first two months of this year compared to the same period last year.

Clearly, four years after interest rates hit a 300 year low of 0.5%, many reluctant investors are accepting they will have to take some level of risk in order to have any chance of achieving a higher income.

Unfortunately though, many savers are not in a position to take on any form of risk with their money; people in retirement are just one example.

Others are simply too nervous to put their savings into the stock market, which is understandable considering the turbulent economic climate.

Despite many people thinking that cash ISA returns are so small it’s hardly worth the while setting one up, these products do in fact remain a good tax-free savings option.

Not only is the interest you can earn tax free, at the moment the rates on best buy easy access, notice and fixed rate ISAs (except on a 1 year term) are better than on the equivalent taxable accounts – even for non-taxpayers.

And cash ISAs can earn you serious bucks.

Savings Champions has calculated that if you had saved the maximum into a cash ISA since they were introduced in April 1999, and each year the rate of interest earned was equivalent to the Bank of England Base Rate, your ISA would have grown to around £60,000.

If you had invested into TESSAs – the predecessor of the ISA – before that, you could have added an extra £13,000 – so in total a tax free pot of approximately £73,000. Far from an insignificant sum of money.

Cash ISAs are also simple and easy to use and so are excellent starting points for young or new savers.

Carl Lamb from Almary Green says: “We read statistic after statistic highlighting the need for people to save money, both for a rainy day and longer term, and this is where the cash ISA really comes into its own.”
Any UK resident over the age of 16 is eligible for an ISA.

Lamb adds: “I would strongly recommend that anyone looking at savings accounts considers the cash ISA as its benefits – despite the low interest rate – are still evident. It would be a mistake to dismiss them as the dodo of the savings’ world.”

Top Ten Variable Cash ISAs

Top Ten Fixed Cash ISAs

Top Ten Junior Cash ISAs

 Source: Moneyfacts: 14/03/13