Savers: use your Isa

High inflation and falling interest rates make it harder than ever to get a decent return on your savings. The consumer price index is currently 3.2%, while the average interest rate on a regular savings bank account is 2%, according to Moneyfacts.co.uk. And that's before tax: the government takes 20% of that 2% (or 40% if you're a higher-rate taxpayer).

So to have any chance of keeping up with inflation, you need to protect as much money as you can from the taxman. The easiest way to do that is with a cash individual savings account (Isa), so it's no surprise that as Isas reach their tenth birthday, they're more popular than ever. A total of 14.7 million new accounts were opened in 2007-2008, compared to 9.3 million in the year they were introduced.

You can put up to £3,600 a year into a cash Isa and all interest on it will be tax-free. So if you had put the maximum allowance into a cash Isa every year since 1999, you would have made around £2,700 more than a basic-rate taxpayer who had put the money into an ordinary savings account. If you are a higher-rate taxpayer then you would be around £4,800 better off, says Melanie Wright on Lovemoney.com.

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As with normal bank accounts there are many different types of Isa, so which one should you get? If you are happy to lock your money away for a year, go with a fixed-rate Isa, as these usually offer the best interest rate. But with interest rates so low at the moment, don't fix for more than a year if you do you'll probably end up losing out in the long run. Most fixed-rate accounts won't let you withdraw your money during the fixed period without paying penalty fees, so only open one if you are happy to lock away the money.

The best fixed-rate, one-year Isa currently available is from First Direct, says Martin Lewis on MoneySavingExpert.com. Their e-Isa pays 3.1% annual equivalent rate (AER) for the first year on balances above £1. You can transfer other Isas into the account with the exception of Isas you already have with First Direct and it lets you withdraw your money at any point without any penalty fees.

Instant-access Isas are good if you want to dip into your savings throughout the year. Currently, the best rate available is 3.55% on Barclays' Golden Isa, although transfers from other Isas are not allowed, so the maximum balance on this is £3,600. Those who want to transfer other Isa allowances into a new Isa may want to consider NatWest's e-Isa, which offers 3.51% AER on balances over £10,000. And anyone who wants to build up savings over the year should consider a regular saver Isa. These offer high interest rates as they limit the amount you can deposit in one go. First Direct is offering 7% AER for 12 months, but you must already hold an account with them.

The Isa deadline is on 5 April each year. You can't carry this year's allowance over to next year, so if you want to save as much tax as possible, you need to act quickly. The deadline is only eight days away.