Deal or no deal on savings?

A quick scan of the “best-buy” tables for savings accounts could make you feel it’s not worth bothering to find the best deal for your money.

Strip out the tax-free offerings, and for higher-rate taxpayers not one of the hundreds of products on offer pays more than the current level of inflation. And the picture is only slightly better for basic-rate taxpayers: of all the banks and building societies, only one offers fixed-rate bonds that stop the value of nest eggs being eroded - Yorkshire and Barnsley Building Society.

But there’s one area where it’s still worth squirreling savings: Isas. Using this tax-free wrapper rather than sheltering cash in most other investments - or just under the mattress - will save on your tax bill.

Britons will this year pay the taxman £509 million extra by not making the most of this tax-free option. Ensure you’re not one of them by using up this year’s allowance before the deadline: April 5, 2011.

You can invest £10,200 in an ISA of which £5,100 can be cash. And banks are currently offering a range of cash Isa deals to lure last-minute savers.

The top deal comes from Santander. Its Flexible ISA Issue 3 pays out 3.2 per cent, the latter’s e-ISA offers 3.1 per cent. However, note that the headline rate includes a guarantee that it will pay 2.65 per cent above the Bank of England base rate (which is 0.5 per cent) for 12 months, so it’s crucial to consider switching after this time, when the rate will be mediocre. This account does not accept transfers-in from other providers.

If you have a cash balance to move, your best options are Nationwide’s eISA, paying 3.1 per cent for a year, and Halifax’s ISA Direct Reward, which offers three per cent. Remember you need to be careful when moving money: simply withdrawing it will see you lose the tax “wrapper” of previous years. Instead, fill in a transfer form with your new provider.

For a longer-term deal, Skipton’s online fixed-rate cash Isa pays five per cent. But with a Bank of England base-rate change on the horizon, variable-rate Isas may be more attactive to most savers.