Make sure you avoid the bad payers

There are around 100 providers offering mini cash ISAs. So how do you choose the right one?

Individual Savings Accounts - the tax-free savings and investment vehicle brought in by the Labour Government - have taken off despite taking a battering from critics, who say the rules are too complex and the limits too restrictive.

Individual Savings Accounts - the tax-free savings and investment vehicle brought in by the Labour Government - have taken off despite taking a battering from critics, who say the rules are too complex and the limits too restrictive.

In the last tax year, people invested £28.4bn in ISAs, substantially more than the £21.3bn invested in PEPs and Tessas the year before. The simplest products often have the greatest appeal - straightforward cash ISAs attracted £11.5bn. For the second tax year in a row, the individual's limit for investment in a cash ISA has been kept at £3,000.

Around 100 providers, including banks, building societies and even supermarket chains, now offer mini cash ISAs, and some of them have a range of up to six different types. So how do you choose which product to go for?

"The decision is purely rate driven," according to Colin Jackson of independent financial advisers Baronworth.

Smile, the Co op Bank's internet banking arm, currently pays the highest interest rate on a mini cash ISA. Savers earn 7.25 per cent, though it is only an option for those who have access to the internet and are familiar with the technology.

Otherwise, the Lambeth Building Society pays 7.15 per cent interest on its cash ISA. But customers need to give 30 days notice to make withdrawals from this account. For instant access to your money, you could choose the Coventry Building Society's account which pays 7.05 per cent and can be accessed by post, according to financial data provider Moneyfacts.

But while the best value ISAs on the market give a good deal, there are plenty of poor products to avoid. In some cases the rates are so low, savers would be better off opening a standard building society account - even though the interest is subject to tax. The Staffordshire Building Society pays just 5.50 per cent interest on its 60-day mini cash ISA, while the Furness Building Society gives a paltry 5.0 per cent return.

And read the small print. Many accounts demand lengthy notice periods for withdrawals even though the interest rate offered is no better than is available on some instant access accounts. Others advertise a high headline rate, but this includes a bonus which is only paid for the first six months.

Some cash ISAs meet the government's CAT (Conditions, Terms and Access) standard. A mini cash ISA, for instance, can only win a CAT mark if you can withdraw money with no notice. Jonathan Horton of IFAs Chamberlain de Broe says savers could use this benchmark to help choose a provider. "Then at least you know it's effectively a clean product and there are no hidden nasties in there," he says.

But anyone with substantial amounts of cash to save should consider investing their money in shares instead. Historically, equities or shares have generated far higher returns over the medium to long term than cash, though there are no guarantees for the future and those returns do fluctuate.

Baronworth Investment Services, 020-8518 1218; Chamberlain de Broe, 020-7584 3300; Smile, www.smile.co.uk; Coventry Building Society, 0845 766 5522; Lambeth Building Society, 0500 200020