COMMENT
Savers: Claim Your Share Of £3.8 Billion!

New research by the Portman Building Society has revealed that only one in nine (11%) UK adults has taken out a cash mini-ISA this year. I find this news really surprising, as cash ISAs are brilliant vehicles for saving, because you don't have to pay tax on your interest.

Portman BS estimates that more than 25 million UK taxpayers are missing out on up to £3.8 billion of tax-free interest, based on the current no-notice cash ISA Best Buy rate of 5% a year. (This rate comes from the Halifax and is available via the Fool).

Savers can put up to £3,000 in a cash ISA every tax year, and an annual rate of 5% would get you £150 in interest at the end of the first year. Outside of an ISA, this interest would be taxed, so you'd only get £120 as a basic-rate taxpayer, or £90 as a higher-rate taxpayer.

While these are hardly huge amounts, the tax savings become more noticeable as you build up your cash year after year. If you saved £250 a month (which neatly adds up to the permitted annual limit of £3,000) for five years, the total interest earned and compounded over this time would amount to £2,023 - all of it tax-free. Outside of an ISA, basic-rate taxpayers would end up with just £1,557, or £1,185 for higher-rate taxpayers. Also, you don't have to declare savings interest from cash ISAs on your tax return, which is a bonus.

Finally, another reason for using cash ISAs is that, quite simply, they usually pay higher rates than ordinary savings accounts. And with inflation currently running at 2.4%, earning the best rate is important. Basic-rate taxpayers need to earn a minimum savings rate of 3.1% a year and higher-rate taxpayers 4% a year just to ensure that the value of their money isn't being eroded by rising prices. Anything less than that and savers won't be preserving the long-term value of their capital.

More: Get the Halifax Best Buy Cash ISA via the Fool!