Thousands of savers could be better off shunning the government's tax-free Isas as rates hit historic lows.
Research shows that as rates on fixed-rate bonds climb to their highest levels this year, interest on these accounts now beats returns on Isas - even after tax relief.
For new customers, the average variable-rate cash Isa - which advisers recommend savers take out to benefit from future interest-rate rises - pays 1.49% on the maximum annual deposit of £3,600, according to Defaqto, the financial-data firm.
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The average fixed-rate bond, meanwhile, pays 3.08% - a return of 2.46% for a basic-rate taxpayer, or 1.85% for a higher-rate taxpayer. A basic-rate taxpayer would be £35 better off in the fixed-rate bond and the higher-rate taxpayer would be £13 better off eschewing the Isa.
The average fixed Isa pays 2.88%, so basic-rate taxpayers would still be better off with the bond, although higher-rate taxpayers would not be.
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David Black of Defaqto said: "Pensioners and other basic-rate taxpayers would be better off without an Isa now, though rates will rise again and the tax relief is lost for ever if you don't use it."
The best fixed-rate bond available is Indian bank ICICI's two-year bond at 4.35% on a minimum deposit of £1,000. Rothschild, the private bank, offers the same rate on a minimum £20,000 deposit - a return of 2.61% for a higher-rate taxpayer or 3.48% for a basic-rate taxpayer.
M&S Money, Barclays, First Direct, Skipton and NatWest have all cut rates on Isas recently, angering savers who scrambled to take out the best deals before the end of April.
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Consumers also say banks won't let them transfer from low-paying accounts - such as Cheltenham & Gloucester's Isa, which pays 0.05% - to better-paying products at the same bank.