With interest rates on cash ISAs at record lows and high ongoing levels of stock market volatility, millions of savers will opt to ‘lose it rather than use it’ this tax year, warns Virgin Money.

But the finance firm says savers can put their £7,200 tax-free savings ISA allowance to use by opting for a combination bond and other income-generating funds.

The Virgin Bond and Gilt Fund has seen yields of 5.06 per cent over the past year and outperformed the strategic bond sector by over 1,100 basis points from March 2008 to 17 March 2009.

That contrasts with the experience across other parts of the savings and investment market. Bank of England figures show average cash ISA rates hit 0.96 per cent at the end of February.

Equity markets are also continuing to struggle, with few equity unit trust sectors showing positive average returns over the past year and some, such as UK Smaller Companies, losing as much as 39.28 per cent.

Grant Bather of Virgin Money says, ‘Looking for silver linings among the clouds over savings and investment markets at the moment is extremely time-consuming and potentially very risky. However, the end of the tax year, and the offer of the ISA allowance, is an opportunity to focus on long-term saving no matter what the current conditions.

‘Income funds are a good way to ensure you use your ISA limit and don't lose it, without putting your money at too much risk. They offer the prospect of income which beats that from cash ISAs and protection from the worst of the equity swings and roundabouts.’

For more information on the Virgin Bond and Gilt Fund, visit http://uk.virginmoney.com/virgin/unit-trusts/bonds-and-gilts/

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