- Tax saving cash ISAs
- Which ISA for You?
- Cash ISAs or not
- Corporate bonds vs Cash ISAs

Just because interest rates are falling to record lows does not mean you should forget about savings all together.

Whilst cash on deposit is no longer offering mouthwatering rates for savers, for risk-averse investors it is still preferable to risking your life savings on a stock market that should come with a health warning!

Many UK investors are understandably reluctant to risk their capital in either stocks and shares or even corporate bonds. Others may want exposure to the stock market but only for a proportion of their savings - the rest they are happy keeping in a savings account.

The credit crunch inevitably focused people’s attention on the safety of any investment – even cash. With banks in trouble there were real concerns that investors could see their money wiped away. Now there are reassurances that your money is safe in a bank or building society so thankfully a degree of normality has returned to proceedings.

What UK investors need to do, regardless of the economic environment, is to consider their circumstances, work out the risks they can afford to take and then choose where to allocate their money.

There is no right or wrong way to invest - the only obvious advice is to establish a realistic risk profile.

If your job is secure, you have no dependents, your house is paid off and you have just inherited ₤200,000 from a grandparent, you are in a position to take on greater risk than someone facing redundancies/lay offs, with three kids and a wife to support and a mortgage and credit card to pay off.

Whilst a stock market might offer greater returns on your money, for many of us the downside risk is too much. The beauty of cash is, even if rates of interest are low, your money is secure.

In fact falling rates should only focus saver’s minds more on getting the best rates available. There are different accounts to suit different investors and it pays to shop around.

The cash ISA should be the first port of call for cash investors. If you are going to hold money on deposit anyway you might as well use your Cash ISA allowance up for the relevant tax year and prepare for the time when interest rates will pick up again. Of course your cash ISA allowance imposes limitations – namely an annual maximum of ₤3,600 for 2009.

One word of warning regarding savings rates, always check the small print. There is usually a trade off for great headline rates.

For instance Saffron Building Society has recently been promoting a cash ISA fixed for a year at 7%. It is a great rate but you have to bear in mind that the tax-free account only runs for 12 months, after which time accumulated funds are transferred into Saffron’s Easy Isa, which pays significantly less (around 0.35% currently).

Also ISA savers cannot invest their £3,600 allowance in one go into this account, the payments have to be monthly installments. For regular savers this is not a problem but the upside is not as great as it might be for lump sum investors. It is worth noting that deals come and go (particularly fixed rate deals) so be prepared to move quickly if necessary. Some savers may be in a position where they can have money tied up for a brief period. If so, the likes of Abbey are offering cash ISAs that reward savers for allowing their money to grow untouched. The Abbey Reward ISA pays 1.5% AER tax free (variable) but offers a conditional reward bonus of 2% tax free (variable) if at the end of the first year the money is untouched.

After the tax-free annual ISA allowance has been accounted for there is no shortage of other accounts for savers to look at. From instant easy access accounts, to notice accounts and online products.

The strict rule of thumb is that you will typically (though not always) get better rates via an online account. The same should apply to notice accounts – effectively banks are paying you extra for the fact that your money is tied up for a period.

Some investors want easy access to their money so are quite prepared to sacrifice a little in the way of interest for the knowledge that their assets are totally liquid.

The two things to remember are – which account suits you best in terms of access and then on an ongoing basis, which banks are offering the best deals in these areas? Don’t be apathetic, just because the savings account you have chosen is the best currently on the market, it may be flagging 12 months or so down the line. Be prepared to vote with your feet if you have to.

Quick Facts

* Cash ISAs have the advantage that they do not need reporting on a tax return and, for the over 65s, the interest does not count towards age allowance.

* You can switch from a cash ISA into a stocks and shares ISA any time you choose (ideally when stock markets are performing stronger) and without incurring a tax liability.