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This allows basic rate taxpayers to pocket £1,000 in interest each year free of tax, falling to £500 for higher rate taxpayers, so that 95 per cent pay no tax on non-Isa savings. Many
preferred to put their money in a standard bank account given that interest rates were slightly higher, as they still are today. For example, challengers Vanquis Bank and Secure Trust Bank
currently pay 2.65 per cent on £1,000 fixed for five years. However there is little difference on variable rate savings accounts, which also start at 1.30 per cent with Virgin and RCI Bank.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, says these may be dark days for savers but there are still good reasons to use your Cash Isa allowance. “The tax breaks are
cumulative, and as you build your savings and interest rates rise, the greater they become.” Don’t lose faith If you are a basic rate taxpayer in a market leading account, you will start
paying tax once your savings total £91,000, a figure that falls to £41,000 for higher rate taxpayers. If savings rates rose by 1 per cent these figures would fall to £48,000 and £23,000
respectively, Coles calculates. “Anyone building their savings for the future will be grateful they took advantage of their cash Isa allowance when other savers lost faith.” Whatever you do,
do not simply take what is on offer from your local high street bank, where rates range from a high of just 0.55 per cent to a low of 0.1 per cent, says Anna Bowes at SavingsChampion.co.uk.
“Challenger banks often pay much better rates, for example, Shawbrook Bank pays 1.25 per cent with no restrictions, and you get the same £85,000 protection under the Financial Services
Compensation Scheme."