Navigate your way through twists and turns of Isa maze

However, Isa accounts offer the best returns available to taxpayers on the savings market. So you ignore them at your peril. Non-taxpayers, though, may be able to get a slightly higher return in a non-Isa account.

Maximising returns is critical with interest rates at such low levels, inflation at 3.5 per cent and institutions squeezing returns further. The best variable rates are little more than 3 per cent. Even without paying tax, the value of your savings is falling in real terms.

Outside of an Isa, basic rate taxpayers must find a savings account paying at least 4.38 per cent to stop their savings eroding. Higher earners require a return of 5.83 per cent if they want to maintain the value of their cash. These do not exist.

Moneyfacts spokesman Darren Cook said: "Inflation is cutting deeper into people's spending power and lower savings interest rates are creating an even bitterer pill to swallow. Isas are a crucial step to protecting what returns you can find."

When choosing an Isa, therefore, you should look for a good rate, but also be confident you are picking an institution which will maintain faith with you. The Yorkshire and Skipton building societies, Standard Life and National Savings & Investments provide the best Isa returns over a longer period.

So as you make up your mind about this year's Isa, Scotland on Sunday answers your questions.

Q How much can I invest?

If you are under 50 you can invest 3,600 in a cash Isa before 5 April and the interest will not be taxed. However, the allowance was increased for the over-50s to 5,100 last October. From April, all ages can enjoy the bigger allowance.

Q I have never opened an Isa before, and only have a modest amount to save. What should I do?

The best account for small balances as low as 1 is at Santander, which is currently paying 3.5 per cent. However, it does not accept transfers in, so the maximum you can invest is 3,600. Moreover, 3 per cent of this return is a 3 per cent bonus which ends after 12 months, so you should keep an eye on this account and switch out at the end of the year.

The other best rate for small balances is available at Barclays Bank, which is paying 3.06 per cent, including a 1 per cent bonus which ends after the first year.

If you find banks offputting, you could consider Marks & Spencer's Isa paying 2.65 per cent on deposits of more than 100, although this too includes a bonus of 1.25 per cent for 18 months.

Q I should be able to deposit the full 3,600 in my first Isa. Do I get a better rate for depositing the full allowance?

Sadly not. Indeed, with Isas the more you invest, sometimes it can seem the less you get. In your case, though, the two bank accounts mentioned above may be suitable. But the Newcastle Building Society will also pay 3 per cent on balances over 500. This again includes a 1 per cent bonus which ends after a year.

But the Newcastle has the added advantage that you can transfer in balances accumulated in previous years, which may make the account more flexible for the future. However, it requires 120 days' notice to withdraw your cash, which may prove too restrictive.

Q I've built up about 15,000 in cash Isa accounts in recent years, and find the rates on offer depressing. What do you suggest?

The returns are hardly something to celebrate, but with interest rates at 0.5 per cent they are still a margin of more than 2 per cent over base. Small consolation, I know.

In your case, the Newcastle account may be worth considering. Otherwise Nationwide has an e-Isa which accepts transfers in, requires no notice on withdrawals, but unfortunately is only paying 2.75 per cent. Believe it or not, this is the best of the rest.

Q I've got 30,000 and frankly find the variable rates on offer derisory. Would I do better to fix?

The best accounts for you again are the Newcastle paying 3 per cent or the Nationwide at 2.75 per cent. On the face of it, you might seem to do better by fixing. The problem is, interest rates will almost certainly go up at some stage, but we don't know how fast or how far they will go. The best rates are available if you fix over the longer term. Savers should be cautious about fixing too far ahead, as it is impossible to second-guess interest rates that far out.

Clydesdale, for example, will fix your rate at 5 per cent for five years, provided you have at least 2,000 to deposit. The Halifax Isa saver fixes at 4.25 per cent for four years, on a minimum deposit of 500.

Nationwide will pay 4.4 per cent fixed for three years on minimum 1 deposits, while Birmingham Midshires pays 3.5 per cent fixed for two years on minimum 1 deposits.

Q Can I keep my options open by putting some of my money into a fixed account and some into a variable one?

The rules governing how many accounts you can have and where they must be held are complex, but the answer essentially is yes, although not all institutions offer this service so you may not be able to with the institution which appeals to you most. Each tax year you can open one new cash Isa. Assuming the new account allows it, you can transfer in your previous years' allowances, but this isn't compulsory so you could have your previous years' allowances with another provider.

If you just have this year's subscription in the Isa then you can transfer this during the year. You can also transfer all or part of previous years' allowances to another provider, but if the Isa contains the current year's allowance the whole amount must be transferred.

The emphasis in the rules is that you can open one new cash Isa with any one provider at a time. As long as you invest your money with the same provider, there is nothing in the rules to stop them allowing you to invest part in a fixed rate Isa and part in a variable rate Isa, other than internal rules at the individual provider. The dilemma for the saver is finding an institution which has attractive fixed and variable rates, as they may be better on one than the other.

In fact, Marks & Spencer Money and Newcastle BS both publish the fact that they allow their Isa savers to do this and both have competitive rates for fixed and variable rate Isa deals at present.

Q Why do Scottish institutions not appear in the best-buy tables?

That's not strictly true, as Clydesdale has the highest fixed rate, although it is also over the longest period. But other organisations will offer fair value, even though they don't quite make it into the best-buy tables.

The Dunfermline Building Society has a one-year fixed Isa paying 3 per cent and the two-year fix paying 3.25 per cent, both on minimum 100 investments. If you withdraw early from the one-year bond you lose 60 days' interest and 120 days' interest from the two-year account. Similarly, the Scottish Building Society has launched a one-year fixed rate Cash Isa Balance Transfer, paying 3 per cent on balance transfers of more than 40,000 and 2.8 per cent on transfers of between 20,000 and 39,000.

'When interest rates pick up again it should all be hunky dory'

ACCOUNTANT John Cleary has been saving the maximum annual Isa limit for about a decade, and believes the best thing about them is that you can build up a sizeable tax-free sum almost without noticing, writes Teresa Hunter.

"Interest rates are rubbish at the moment, but it is better to have a rubbish return free of tax rather than pay tax on it," John said. "And when interest rates pick up again then it should all be hunky dory."

John, who lives in Stirling and works in Glasgow, has given the stock market a wide berth in recent years, nervous about its volatility, and stuck with cash Isas. As he is under 50, he has already injected the maximum 3,600 into his Scottish Building Society account for this year.

He said: "I started with the Scottish, it must be nearly ten years ago, because there was a convenient branch and the staff are very friendly and helpful. I don't chase the best rates all the time, because I take the view that life's too short.

"Even if you do actively switch, you often find that some of these accounts which offer headline-grabbing returns one day, slash their returns later when you are not looking, so you actually end up worse off. I'm happy to sit with an institution which should give a good, or as good as anyone else, return over the longer term."

Wife Cecilia also saves regularly in her Isa. "We like the idea of building up a lump sum which will provide a tax-free income in the future," John added.