Oh how quickly things change. It doesn’t seem that long ago that we could put our cash in a nice safe deposit account and earn an acceptable five or six per cent interest, comfortable in the knowledge that, even if this was not a particularly exciting rate of return, it was better than watching the carnage in the stock and property markets.

Then Lehman Brothers happened. Now, everything has changed. Incredibly, we are considering the prospect of interest rates in this country falling to near zero, as they have done in the US, and those who are dependent upon their interest for income are in serious trouble. Furthermore, the flight to quality and risk aversion displayed through the autumn has led to government bonds (US Treasuries and UK Gilts) yielding little more than cash, with one analyst describing investing in US bonds as ‘return-free risk’.

That old sage Warren Buffett has weighed in with one of his acerbic observations that ‘Today, people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset – one that pays virtually nothing and is certain to depreciate in value.’ So where can one turn?

With fortuitous foresight, last year the government lifted the restrictions on cash ISAs so that now they can be transferred into the stocks and shares equivalent (although they cannot be moved in the other direction).With the ‘ISA season’ fast approaching, this year’s ISA choice should for once, be a ‘no-brainer’. Forget the cash option and put any ISA money, including that which has already been accumulated, into a corporate bond ISA instead.

Corporate bond funds are now the cheapest they’ve ever been. The M&G Strategic Corporate Bond Fund is yielding a steady 5.2 per cent per annum, while the M&G Optimum Income Fund is giving around 6.5 per cent, reflecting a slightly riskier investment strategy. Other corporate bond funds are yielding over ten per cent. The M&G funds just mentioned have already risen in value by 4.42 per cent and 5.41 per cent respectively in the month to mid January, so the market is waking up.

Individual bonds can only do one of two things – they can default, or they can redeem. Assuming that the M&G team continue to do their job properly (and they are one of the best there is) and avoid most of the defaulters, exactly how risky is it to buy these funds now, particularly if they are put in the tax-free environment of an ISA?

Feel free to contact me for my current list of favoured bond funds.

Andrew Merricks is head of investments at Skerritts Consultants. You can contact him on 01273 204999 or via email at andrew@skerritts.co.uk or visit the website www.skerritts.co.uk