Rush for mini ISAs leads to restrictions

While not quite on the same level as the 1849 California gold rush, a stampede of sorts for Intelligent Finance's mini cash individual savings account (ISA) has forced the internet bank to impose restrictions on savers.

While not quite on the same level as the 1849 California gold rush, a stampede of sorts for Intelligent Finance's mini cash individual savings account (ISA) has forced the internet bank to impose restrictions on savers.

Its table-topping offer of an annual tax-free 4.6 per cent return on balances as small as £1 has lured more investors than it can cope with.

You'll now have to get your application into the bank by Wednesday 24 March if you don't want to miss out on your allowance for the 2003-04 year, even though the end of the tax year is nearly two weeks later on 5 April.

IF's rate is variable, so it is liable to change. But if the base rate continues to rise it will be for the better, as the bank guarantees the rate to be at least 0.3 per cent above this until 31 January 2005.

If you don't manage to beat IF's early deadline, our best buy tables show you won't miss out on too much interest by opting for a mini cash ISA from Marks & Spencer Money or Kent Reliance building society. The high-street retailer's financial services arm is offering 4.5 per cent a year tax-free on balances of £10 and above .

This rate is also variable but M&S Money promises it will remain at least 0.5 per cent above the base rate until the end of the 2004-05 tax year.

Similarly open to rate changes, Kent Reliance's mini cash ISA pays 4.36 per cent interest on balances as low as £1. But unlike the others it doesn't offer guarantees of any kind.

All three providers enable savers to withdraw their cash without notice or penalty. But remember, if you do so, you won't be able to reinvest this in your ISA during the same tax year.

There is no disputing the popularity of mini cash ISAs: they account for more than nine million of the 12.5 million ISAs opened in the 2002-03 tax year. They don't carry any initial or annual charges.

You can invest up to £3,000 in a mini cash ISA this tax year. If you can afford to, it's a good idea to make the most of this allowance as it will be slashed by two-thirds to just £1,000 from April 2006.

But once you have invested your money, keep an eye on the interest rate being paid.