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Compare fixed-rate ISAs

Compare fixed-rate ISAs

If you have some savings you know you won’t need for a while, a fixed-rate ISA could be a reliable way to earn interest on them. We take a look at how fixed-rate ISAs work and what the tax benefits really mean.

Anelda Knoesen
From the Money team
3
minute read
posted 25 FEBRUARY 2020

What is a fixed-rate ISA?

Fixed-rate ISAs are a type of tax-free savings account.
As with all ISAs:

  • you can pay in up to your ISA allowance each tax year – in 2019/2020, that’s £20,000
  • you don’t have to pay tax on any interest you earn.

When you put your money in a fixed-rate ISA, you’re agreeing to lock it away for a fixed term – usually one, two or five years. In return, you’re guaranteed a fixed rate of interest for that term.

Compared to instant access ISAs, which let you access your money whenever you want, fixed rate ISAs often offer better interest rates. But the downside is that if you need your money unexpectedly, you won’t be able to get hold of it – or if you can, you probably have to pay some hefty penalties.

When to choose a fixed-rate ISA

Usually, you’d choose an ISA over other kinds of savings accounts if you want to reduce the tax you pay on your savings. You have to be earning quite a bit of interest for this to be worthwhile – your first £1,000 of savings interest is tax free anyway. That makes a real difference. In fact, in the year after that £1,000 tax-free allowance was brought in, Brits put £20bn less in to cash ISAs than in the previous 12 months.

Fixed-rate ISAs are suitable for putting aside money you know you won’t need during the term. For example, if there’s money you’ve saved up for a wedding, you might want to put it away until it’s time to pay the bills.

What to think about when comparing fixed-rate ISAs

  • The interest rate. Obviously you want a decent interest rate for your savings – but that’s not the only thing to consider.
  • The term. Generally, if you’re willing to put your money away for a longer term, you’ll find higher interest rates on offer. However, when interest rates are low you should be careful about long terms. If interest rates rise, what sounded like a great rate at the beginning of the term might not seem so attractive – but you’ll be stuck with it.
  • Access. If you think there’s an outside chance you’ll need the money for an emergency, take a careful look at the terms and conditions for access. You might not want to choose a policy that gives you no option to take your money out early.

If you’re in any doubt, you should take expert financial advice.

What other options are there?

If you’re interested in tax-free savings, there are a few other ISA options:

  • Instant access ISAs - for money you might need at short notice
  • Junior ISAs - for saving for your child’s future. Please note, you currently can't compare these with us
  • Lifetime ISAs - designed for long-term savings. Please note, you currently can't compare these with us.

If you’d like a fixed interest rate, but don’t think you need the tax benefits of an ISA, there are plenty of other fixed-rate savings accounts available.

What are the advantages of a fixed rate ISA?

Choosing a fixed-rate ISA guarantees you a level of interest, allowing you to plan your finances more accurately and protecting you against any fall in interest rates. Normally, a fixed-rate ISA offers a higher level of interest, with longer term ISAs typically offering the highest rates. 

Can I withdraw money from a fixed rate ISA? 

Normally, fixed-rate ISAs lock up your money over the course of the fixed term, leaving you unable to make withdrawals. If you do need to take money from your account, you’ll likely face a fee and lose the tax benefits. 

Can I combine older ISAs into one? 

If you’re holding multiple ISA accounts, it’s a good idea to consider combining them into one. You’re only allowed to pay into one ISA account per year, so holding multiple ISAs can be less beneficial. Transferring your ISA is a simple process. By filling out a transfer form, you can transfer like-for-like ISAs in 15 working days, while transitioning from one type of ISA to another can take up to 30 calendar days. While ISAs tend to have deposit limits, transferring your funds from one account to another does not count as a deposit. 

Can I transfer an ISA to someone else? 

An ISA is an Individual Savings Account, which means it can’t be transferred between people. If you’d like to transfer the funds, you’d have to withdraw them from your account and give them to the receiver, who can then open their own ISA account and deposit the funds. You may face penalty fees if withdrawing prior to the end of an agreement, and the recipient will be subject to any deposit limitations. 
 
It’s possible to inherit an ISA if the account holder dies, but this is also subject to allowance limitations. 
 
You can also set up an ISA for a child, who will then inherit the account and its funds when they turn 18. 

How do I find the right fixed rate ISA? 

The big banks don’t always offer the best ISA rates, so it’s worth comparing providers to see if you can find a better one. It’s easy to compare fixed-rate ISAs with our handy comparison tables – and you’ll see competitive rates from less well-known ISA providers you might not think to check when you’re shopping around. 
 
Usually, locking yourself into a longer fixed term gets you higher ISA rates. This restricts your access, but is rewarded with a better rate. 

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