Top average cash ISA rates up by 11 per cent

Analysis by moneysupermaket.com shows the average top five cash ISA rates are currently 2.83 per cent, an 11 per cent increase on this time last year, as a number of smaller banks and building societies kick-start this year's ISA season with a range of new products.

Several cash ISAs have launched in the last few weeks, including Nationwide today launching an e-cash ISA offering a market leading rate of 2.9 per cent, although you do need to hold another product with Nationwide to qualify. With a few months to go until the end of this tax year, savers should be looking to maximise their ISA allowance where possible and check the rate currently being offered by their provider to ensure they are getting the most interest available.

Kevin Mountford, head of banking at moneysupermarket.com, said: "The recent activity in the ISA market is great news for savers looking to maximise their ISA allowance for 2010/11. The traditional ISA season has started earlier than previous years and in general, savings providers are being more aggressive than normal. It is interesting to see a number of building societies entering the ISA market compared to last year, where they played a much more muted role. For example Chelsea Building Society launched a competitive three year fixed rate ISA at four per cent, and it also allows transfers of existing ISA funds in."

Kevin Mountford continued: "The rates being offered on new cash ISAs are comparable with standard rates available on regular savings accounts but consumers get the additional benefit of not having to pay income tax on the interest earned.  Currently savers have an annual ISA allowance of £10,200 which can be split between cash and stocks and shares ISAs. A maximum of £5,100 can be placed into a cash ISA.

"As the nation's purses continue to be squeezed by rising inflation, it is imperative consumers do as much as possible to protect their savings pots. Many savers may not be aware of their current ISA rate so, as a first step, they should check the rate they are on, and switch to a better deal if necessary. If you have had an ISA for more than twelve months, the chances are you will be on a much lower rate of interest so it would be beneficial to switch."

"The great news for savers is that new rules have improved the ISA transfer process meaning it should take no more than 15 days. Savers should therefore act now and switch providers if they find their existing ISA savings are offering low returns.  In addition, some providers such as Halifax and Bank of Scotland have introduced new ISA guarantees which mean they will pay interest from the date the account is opened, rather than when funds are transferred in."