Tax-Free Savings Survey: It's a jungle out there; but you're safe in the post office

CASH ISAS have taken the lead in attracting most of the public's savings during these early days of the new tax-free investment regime. Not surprising, given the amount of advertising that was being done by the banks and building societies over the last couple of months.

They offer some very attractive interest rates on their new accounts many of which are CAT-marked. In the case of cash ISAs, this amounts to having no one-off or regular charges, a minimum transaction size of no more than pounds 10, with ease of access so that withdrawals can be made in one week or less.

On the terms front, the interest rate offered has to be no lower than 2 percentage points below base rate and must follow any increase in base rate within a month although they may be slower if rates fall.

Along the high street, in the first two months of the new tax year, banks and building societies are already boasting about their success in the market place. With their hundreds of branches and millions of customers on their mailing lists, it is not surprising to see them doing well.

But when it comes to the number of outlets offering cash ISAs, National Savings which has an outlet in the country's 19,000 post offices, swamps them all.

And while Britain's second largest savings institution (the Halifax is the largest) may not be offering the top rate of interest for deposits, it is none the less offering a competitive rate of 5.75 per cent tax free.

This is equivalent to 7.2 per cent for a basic rate taxpayer and 9.4 per cent to anyone paying the higher rate of tax.

"When we announced our CAT-marked ISA in mid-March, ahead of most of our rivals, we set out with the intention of making National Savings a part of every investor's portfolio," says Chris Moxey, commercial director at National Savings.

"We made it very easy to open an account, whether it's for lump sums or regular savings. Every post office branch can take deposits, they can be opened over the telephone or by letter. We even have an Internet site with all the relevant information in plain English, although until the rules are eventually announced for e-commerce signatures, you cannot open an ISA through the website."

National Savings guarantees that the rate it offers will not fall below base rate at any time during the current financial year. The minimum deposit is pounds 10, and up to pounds 3,000 can be invested in the first year, pounds 1,000 thereafter. Money can be withdrawn at any time without notice, although any taken out of an ISA cannot be replaced later on.

During the first two days that ISAs were available for purchase, 10,000 new accounts were opened with National Savings. It has now attracted over pounds 100m from the public.

While those prepared to invest over pounds 1,000 up to the pounds 3,000 maximum may get better deals elsewhere, for the small saver - very much the type of person that the Government had in mind when it introduced ISAs - the National Savings cash ISA is an attractive package.

In fact, only a few financial institutions offer a better ISA deal. Nationwide is offering one of the best deals paying 6.5 per cent tax free for a minimum deposit of pounds 1, with a guarantee that the rate of interest paid will be at least 1 percentage point over base rate until October and at least equal to base rate for the rest of the financial year.

Others, including Abbey National, Britannia Building Society and the Woolwich, are paying 6 per cent free of tax for a minimum deposit, usually between pounds 1 and pounds 10.

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