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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
minute read
posted 18 NOVEMBER 2019

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 2018/2019, 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 into 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.

Compare fixed-rate ISAs

The big banks don’t always offer the best rates, so it’s worth your while to compare the providers out there. 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.

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