MIDDLE class Scots may have been hit by the SNP Government’s decision to start charging higher-rate tax on earnings over £43,000, but with the end of the tax year fast approaching there is still time to claw a little of that back by taking advantage of the ISA allowance.

In the current tax year the maximum amount that can be saved into an ISA is £15,240, with any interest on a cash version or gain on the stocks and shares variety being payable free of any tax.

As recently as the 2014/15 tax year the amount that could be saved into an ISA was capped at £11,880, with just half of that allowed to be held as cash. Since that restriction has been removed and the limit raised the amount of money saved via ISAs has soared, but is cash really the best way for savers to take advantage of the tax breaks these products bring?

According to research from insurer Royal London, the amount of money invested in cash ISAs soared from £40 billion to £60bn between 2013/14 and 2015/16 – a rise of 50 per cent – while new investments into stocks and shares ISAs increased by just 16 per cent to £21bn. Of the £518bn now invested in ISAs, nearly half – 48 per cent - is now held in cash.

However, Trevor Greetham, head of multi asset at Royal London, said that with interest rates close to zero and inflation starting to rise “holding cash is not a sensible option”.

Indeed, according to the Moneyfacts website the best cash ISA rate currently on offer comes from Paragon Bank, which will pay 1.6 per cent on its five-year fixed rate bond. This is exactly equal to the current rate of inflation, meaning any gains will be cancelled out by the erosion of the money’s purchasing power.

“In the short run, cash is safe but in the long run it is risky,” Mr Greetham said. “Switching your money into a well-diversified multi asset fund limits volatility and should grow the real value of your capital over time.”

While stocks and shares ISAs have the potential to increase savings pots by significantly more than the current rate of inflation, Tom Stevenson, investment director for personal investing at Fidelity International, warned that anyone looking to go down that route should first think carefully about their investment goals.

“Before you venture into the world of investing be sure to set out clear and realistic goals,” he said.

“You should think about what you want to achieve and when you want to achieve it by. On top of that you will also need to consider how much risk you are willing to take to achieve your goals when building your ISA portfolio – higher risk investments hold the promise of more lucrative returns but also come with a greater risk of losing your money.”

Although stock markets performed well in 2016, political influences on both sides of the Atlantic meant that how and when they grew was unpredictable. Mr Stevenson said this uncertainty is likely to continue over the course of this year, meaning investors “would be prudent to protect [themselves] against any potential market volatility”.

“The best way to future-proof your investment portfolio against the market’s ups and downs is to remember the old adage of placing your eggs in several baskets,” he added.

Sam Coppin, director of advised investments at Saga Investment Services, agreed, noting that one of the best ways to diversify is to invest across a broad range of markets.

“UK stock exchange listed companies represent around 10 per cent of global stock markets, so it simply doesn’t make sense to restrict a choice of investments to the UK market alone,” he said.

“These days it’s easy to invest internationally – there are thousands of investment funds available covering most of the overseas markets. Generally it makes sense to invest as widely as possible – this will deliver some diversification benefits and also allow exposure to the full range of investment opportunities.”

Some ISA providers will make investment choices for you by creating ready-made portfolios, while others allow you the freedom to compile your own portfolio by choosing from a universe of investment funds.

With Virgin Money, for example, investors can choose from five different funds, each put together with a different level of risk. Providers such as Axa and Barclays, meanwhile, allow investors to choose from hundreds of funds from a wide range of fund managers, each with different geographic or sectoral biases.

Regardless of how you choose to invest, anyone looking to use their ISA allowance by taking out a stocks and shares product before the end of this tax year should not be thinking about taking their cash out any time soon. While it might seem counterintuitive, this is especially true if investments start to go down.

As Mr Stevenson said: “Investing should ultimately be a long-term game – don’t be put off by short-term market jitters.

“While it might be tempting to jump ship when markets get choppy, time in the market matters much more than timing the market.”