2. Cash ISAs (and TESSA-Only ISAs)

A cash ISA operates in exactly the same way as if you were putting money into a savings account that pays interest (the difference being. with an ISA, you don't pay tax on the interest). The limit for contributions to a cash ISA is £5,340 for the 2011/12 tax year.

Some cash ISAs can be opened with as little as £1, but others require more substantial amounts and are primarily designed to attract people who already have a number of years' worth of cash ISAs and who are looking for a better rate.