Leanne Macardle

Leanne Macardle

Published: 30/01/2019

At a glance

  • Fixed rate cash ISAs are a great choice if you're interested in taking full advantage of your cash ISA allowance and you have enough spare money to lock away for one to five years. 
  • Often fixed rate cash ISAs offer higher interest rates than instant access ISAs.

How does a fixed rate ISA work?

Before you search for the best fixed rate ISA, there are a few things you should know:

  • Fixed rate cash ISAs tend to pay higher rates of interest than easy access or notice ISAs, and unlike with a variable rate account, the interest rate cannot change during the fixed term
  • Make sure you can commit your money for the full term, as early access will usually result in a hefty penalty and sometimes also closure of the account
  • In a similar vein, not all accounts will allow you to add funds after opening or accept transfers in from existing ISAs, so check the restrictions before you commit
  • You can hold more than one cash ISA at a time, but you can't open more than one per tax year
  • You can only invest up to the maximum ISA allowance per tax year, but it is possible to transfer funds from previous years without limit
  • Tax advantages will depend on your individual circumstances and may change in the future

So, as you can see, there are certain restrictions that may make fixed rate ISAs unsuitable, particularly for people who think they might need access before the end of the term.

If you know you won't need the funds, however, the main reason to save into such an account (instead of a regular fixed rate bond) is the fact that all interest from savings in ISAs are exempt from taxation. This is compared with non-ISA products, which only allow up to £1,000 in interest to be saved tax-free per year under the current personal savings allowance, depending on your normal tax rate.

Saving in a fixed rate ISA has the additional benefits of appealing interest rates and security – if you think rates are going to go down soon, you can lock into a higher rate for a year or more. This can be especially beneficial for existing ISA pots that might be currently languishing in easy access accounts paying low rates.

Banks and building societies feel comfortable paying a higher interest rate on fixed rate ISAs than on an instant access ISA, because they know that your money will be invested with them for the duration of the term. Easy access ISAs offer no such guarantee.

As with non-ISA savings accounts, £85,000 of your ISA savings are currently protected per person per UK banking group through the Financial Services Compensation Scheme. This means that if the bank or building society were to go bust, you'd get £85,000 of your money back from the Government if no other arrangement can be made. Similar schemes exist for non-UK banks; just check the ‘Details’ of any account above to see how much would be protected with the provider you're interested in.

You can have more than one cash ISA at a time from previous tax years, although you can only pay into one new cash ISA per tax year (which runs from 6 April to the following 5 April). So, you can have a fixed rate ISA for money you don't need access to, as well as an easy access ISA that you can add funds to and withdraw from, provided they are opened in different tax years.

Opening a fixed rate ISA

Anyone over the age of 16 who is resident in the UK can open a cash ISA. As stated, however, you will only be able to open one cash ISA per tax year, and this includes Help to Buy ISAs. So, if you're just starting out, you'll have to decide whether you want to get a fixed rate cash ISA first, or an easy access version. Some providers allow you to invest in both fixed and variable rates within the same ISA account which can give extra flexibility; check the product details closely.

Any cash ISAs opened in previous tax years are irrelevant, as you can have as many ISAs as you want – provided you adhere to the general ISA restrictions. Note that you can open a cash, stocks & shares, innovative finance and lifetime ISA in the same tax year, as long as you don't exceed the overall ISA allowance, as these are considered separate ISA types. A Help to Buy ISA, however, is considered a cash ISA.

Once you've decided on the best fixed rate cash ISA for you, simply contact the provider to find out what you need to do. The providers' permitted account opening methods are clearly displayed on our results section, and some accounts may even have a orange button that makes it easy for you to click through and apply.

Find out more about cash ISAs by reading our guide

Depositing into a fixed rate ISA

The annual ISA allowance for both the 2018-2019 tax year and 2019-2020 has been set at £20,000. This means you can put this amount of new money into an ISA during the tax year. However, you can still transfer previously accumulated ISA funds into a new fixed rate ISA, so you're not entirely limited to the annual allowance. Having said that, not all ISAs allow transfers in from existing accounts, and those that do allow ISA transfers in may not allow them from all account types, so be sure to check this before you decide.

Once you've opened an account and the initial deposit and/or transfer has been made, you may not be able to make any further additions to your fixed rate ISA. Sometimes a provider will allow you to make further contributions for a limited period and/or while the ISA remains on general sale, but once it is withdrawn you will be unable to add to your pot. Always check the details so you know what your options are.

Early access penalties

You can withdraw your money from a fixed rate ISA, but this will usually be at the expense of a penalty.

  • All cash ISAs allow you to transfer your money into another ISA at any time
  • However, they don't have to allow you to withdraw your money directly (in order to make a withdrawal, you may have to transfer your money to an easy access ISA first)

Either way, if you do need to access money held in a fixed rate ISA before the end of its term, you may well have to forfeit a fair amount of interest. Generally, interest penalties will see you lose a set number of days' interest, although some providers ask for a tapered amount depending on when you need to access your cash and the length of term remaining.

Less commonly, some ISAs may charge a flat fee instead, such as £50. While this might at first glance appear off-putting, on larger balances a £50 fee could actually be cheaper than an interest penalty. Just remember that early access penalties can be a common feature of fixed rate ISAs, so you may want to look elsewhere, such as at a variable rate ISA, if you think you might need access during the term.

Also, remember that if you do withdraw your money from an ISA rather than following the transfer process, you may not be able to replace it later. You can only put as much as the annual ISA allowance away in a single tax year. That said, some ISAs do allow you to withdraw and replace funds provided that the total invested doesn't exceed the ISA limit, although not all providers will allow this flexibility.

Can a fixed rate isa be transferred?

REMEMBER: If you want to transfer funds from one cash ISA to another, NEVER withdraw the money yourself, otherwise you’ll lose your tax advantages. You must follow a set transfer process; find out how to transfer a cash ISA.

Which fixed rate ISA should I choose?

You'll want to pick the term of your ISA based on when you may want access again. If you think rates will rise in the near future, you may want to go for a one-year ISA, whereas if rates are likely to go down, you’ll want to secure your rate for as long as possible.

Once you've picked a term, all that's left is to compare fixed rate ISAs on the basics: rate, investment limits, accessibility and account management options. Remember that the best rate ISA isn't automatically the most suitable for you, depending on its other features.

Thanks to deposit protection schemes, you shouldn't have to worry about how familiar the provider sounds. As mentioned earlier, most providers big and small fall under the same scheme, so just check the details to see how much is safeguarded with your choice of provider. Remember though that any non-ISA savings held with the same bank would also count towards your overall £85,000 protected limit.

Find out more about depositor protection schemes and the kind of savings accounts available, and if you’re ready to take the plunge with an ISA, search them here.

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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

black and white image of woman putting coins into a piggy bank

At a glance

  • Fixed rate cash ISAs are a great choice if you're interested in taking full advantage of your cash ISA allowance and you have enough spare money to lock away for one to five years. 
  • Often fixed rate cash ISAs offer higher interest rates than instant access ISAs.


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