Tbh after Icesave and Kaupthing Edge going bust and Northern Rock and Anglo irish being nationalised you can hardly blame people.
Investing might get you a much better return over the next 5 years, something with low charges like a ftse all share index tracker, combined with quidco's £85 cashback.
Do you know anyone who has actually lost any money (from savings) lodged in any of those institutions? Investments, obviously, are a completely different kettle of fish.
With regards to your second comment, absolutely 100% right, although again, you should expect (in general) to get higher returns if you are prepared to invest over a longer period. The returns will probably be directly linked to risk, however.
Regarding the OP, 0.5% on an ISA is very low and there are much better deals out there. Have a look around. You should get 2.5%-3% no problem at all. Don't forget the base rate is only 0.5%.
Whilst the interest rates are low at the moment that will no doubt change, and you should keep an eye on any ISA you have and re-invest each year, as it is difficult to get excited about the returns on an ISA at the moment, especially if it is your first one, but, once you have invested in an ISA for 3-4 years and have a larger sum in it, the tax free benefits start to look more attractive.