With returns on savings dwindling because of the recent interest rate cuts, a post-Budget poll on moneysupermarket.com found that 61% of savers feel that the increase in the ISA allowance isn't enough and that the Chancellor should have done much more to help them. A further 23% said they felt the increase was a welcome small step but further measures to improve the plight of savers are needed.
So with the onus remaining firmly in the hands of the individual, what can you do to maximise the returns on your savings?
Cash ISAs
With interest on cash ISAs being tax-free, they are a highly valuable savings option in the low interest rate environment.
Presently, you can invest up to £3,600 each tax year in a cash ISA, although this will increase to £5,100 for the over 50s from October 6 (and for everyone else from next April next year). This is only 50 per cent of the annual ISA allowance - you can invest up to £7,200 in total, rising to £10,200 once the new higher limit is introduced.
If you qualify for the new higher limit this year, it doesn't mean you have to wait until October before you can make use of your ISA allowance - you can pay in up to £3,600 now and top up the remainder later in the year. However, if you are opening a new ISA account, check with the provider that additional deposits can be made. This won't be a problem if it's an easy access account but fixed rate deals often only permit a single deposit.
The leading cash ISAs are paying 3.0% or more. Barclays Golden ISA is offering the highest rate at 3.61%, although this includes a 1% bonus which lasts for 12 months. Alternatively, if you have a Natwest or Royal Bank of Scotland current or instant access savings account, you qualify for their Cash ISA Plus accounts paying 3.51%.
However, none of these accounts permit transfers so you can only invest this year's ISA allowance. If you also have money invested from previous tax years that you want to move into a higher paying account, Natwest's e-ISA has the highest rate at 3.25%. As with its Cash Plus ISA though, you must have a Natwest current or instant access savings account to qualify.
Alternatively, First Direct's e-ISA and Marks & Spencer Money's Advantage Cash ISA accept transfers and are paying 3.10%. Another option is the Halifax ISA Direct Reward at 3.0%.
Fixed rate bonds
Fixed rate bonds are offering the highest rates of interest at the moment (although remember this will be taxed, so despite a higher headline rate, the overall return will still be lower than that achieved from a cash ISA).
If you've used your ISA allowance and have more money in savings, fixed rate bonds are worth considering. However, they are only suitable if you have money you can afford to lock away because penalty-free withdrawals are not usually allowed during the fixed term.
And the good news for savers is that competition is hot in the fixed rate bond market at the moment. ICICI Bank has the highest paying two-year bond at 4.20%, having just increased the rate on this account, while Cahoot's two year bond is paying 4.01%. The minimum investment on the Cahoot account is £30,000. ICICI's account is available on balances of £1,000 or more.
If you would prefer a one-year bond, ICICI again leads the field. Its One Year Fixed Rate HiSave account is paying 3.90%. Alternatively, the AA's Telephone 12-month bond offers a rate of 3.75%.
There are slightly higher rates on accounts with longer fixed terms - the leading five year-fixed bond has a rate of 4.40%. However, with interest rates at a historic low, the danger of locking your money away for longer than a year or two, is that you could be stuck on an uncompetitive deal when rates start to rise again - which they will at some point.
Easy access accounts
The rates on the leading easy access accounts, while lower than those on fixed rate bonds, are still significantly higher than the 0.5% base rate.
ING Direct's Savings Account, is the market-leader at 2.75%, although this includes a one-year bonus of 2.22% for the first 12-months, so you should look to move your money once that ends.
There are a number of products offering rates of 2.50%, including deals from Alliance & Leicester, Abbey, Egg and Bradford & Bingley. However, these also all include 12-month bonuses.
If you are looking for an account without a bonus, ICICI Bank's HiSave Savings account is offering the leading rate at 2.45%.
For more information on the latest savings deals visit our savings channel.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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