With the start of the new tax year on April 6 savers and investors across the country got a tax-free savings allowance of up to £7,000.

But with hundreds of financial services companies vying for our attention, with colourful campaigns, it could be difficult to know how to make the most of this allowance and where to invest it.

So is it worth opening a tax-free savings account and what are the different kinds of account available?

Tax-free accounts are known as individual savings accounts (ISAs). They break down into three types: Cash, insurance and stocks and shares.

Each tax year individuals can invest up to £3,000 in a cash mini-ISA, another £3,000 in a stocks and shares mini-

ISA and a further £1,000 in an insurance mini-ISA, although only about 12 companies offer this.

Alternatively, a saver can pay £7,000 into a maxi-ISA, which can have cash, stocks and shares, and insurance components.

You cannot invest money into both a maxi-ISA and a mini-ISA in the same tax year.

But is it worth opening an ISA just to avoid paying tax on the interest or income you earn?

Nigel Payne, head of savings at Halifax, thinks so.

He described ISAs as the easiest tax break there is.

Halifax, which sells one in four of all cash mini-ISAs, estimates last year Britons paid up to £200 million more tax on their savings than they needed to by failing to take advantage of ISAs.

On an individual basis, if you paid the maximum £3,000 into a cash mini-ISA earning interest of 4.80 per cent you would earn £144 interest in a year.

If you held this money in an ordinary savings account, you would lose £28.80 to the taxman if you are a base rate tax payer and £57.60 if you are in the higher income tax band.

Cash mini-ISAs also tend to offer better savings rates over the long-term than ordinary savings accounts and they can be opened with as little as £1 at most banks and building societies.

According to Moneyfacts, Northern Rock offers the best rate at 4.8 per cent, followed by Julian Hodge Bank at 4.55 per cent, while Cheltenham and Gloucester offers 4.5 per cent.

Investors who are willing to take more risk should think about putting their money into a stocks and shares or equity ISA, which can be taken out as either a maxi-ISA or a mini one.

Equity ISAs split into two categories, actively-managed funds, where a fund manager selects shares they think will perform well, and tracker funds, which simply buy shares in all the companies in an index, such as the FTSE 100, and replicate its performance.

Managed funds have higher charges than tracker ones but can perform better in difficult markets such as the current one.

Many people have been put off investing in stocks and shares recently because of volatile markets but Robert Guy, from Brighton office of The MarketPlace at Bradford and Bingley, said it was time for investors to get back into equities.

Provided people had a balanced portfolio, they should consider using their whole £7,000 tax allowance to invest in stocks and shares.

He suggested putting £3,500 in now and the remainder in gradually over the next six to 12 months.

Mr Guy said: "If the market does move up from here you have got a reasonable wedge of money in at quite a low level."

Roderic Rennison, financial services director at Charcol, agreed savers should think about putting money into the stock market.

He suggested they should focus on a maxi-ISA but "dribble" money into the market in monthly instalments rather than putting it all in at once.

He recommended managed funds which invest in a range of general equities, such as the HSBC UK income and growth and AXA multi-manager ISA, bought through The MarketPlace.

Any investor's starting point should be what he or she already has in his or her portfolio and whether the investments suit the level of risk he or she is prepared to take.

Anna Bowes, savings and investment manager at Chase de Vere, recommended the Fidelity special situations, New Star higher income and Credit Suisse income funds.

She said: "It's a good move to be in equities. The UK is looking good for the time being. We have a strong economy and markets are low.

"But you should look for actively-managed funds not trackers because the stock market has been pretty flat but there is a good deal of movement throughout the day."

If people were already confident they had a balanced portfolio and were looking for a long-term investment of at least five to ten years, they could consider putting some money into a specialist technology ISA.

She said: "Technology is still a good bet. It's high risk, and you are unlikely to see the same level of returns as in the past but you just have to look at the world to realise technology is not going to go away."

But Amanda Davidson, director of Holden Meechan, said: "I would avoid the highrisk, high-volatility areas.

This is a year to retrench."

She said she had invested in the UK, Europe and America through Artemis UK special situations fund, Threadneedle American select growth and Investec European.