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Compare fixed-rate cash ISAs

If you have savings you know you won’t need to access for a while, looking for a good 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.

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What is a fixed-rate ISA?

Fixed-rate ISAs are tax-free savings accounts that you open for a specific period, with an interest rate that depends on the length of your term. These terms typically range from one to five years, although some providers may offer greater flexibility.

As with all ISAs:

  • You can pay in up to your ISA allowance each tax year – in both 2023/24 and 2024/25, that’s £20,000
  • You don’t have to pay tax on any interest you earn.

Once you’ve put money into your ISA (you’ll typically have two weeks from opening your account to deposit your savings), your money is locked away for a fixed term. In return, you’re guaranteed a fixed rate of interest for that term.

If you need to withdraw your money from the account, before the term ends, you might have to pay a significant exit fee. This is usually anywhere between 60 days and 365 days loss of interest.

Fixed-term vs instant access cash ISAs

Fixed-rate cash ISAs pay a set level of interest for a certain period of time – usually between one and five years. Typically, the longer the term, the better interest rate you’ll be offered.

The downside is your money will be tied up for a longer period. If you need your cash unexpectedly, you’ll probably need to pay an exit fee. And with a fixed-rate ISA you might not be able to add more cash after your original deposit.

With an instant access cash ISA, you can access your money whenever you want, without penalty. You can also usually pay in more money when you can afford it – up to your personal limit across ISAs. However, interest rates can change and may not be as high as a fixed-rate account.

Alternatives to fixed-term ISAs

Some providers offer the option of a limited number of withdrawals during the fixed term. This could be an option if you want to be sure you can access your money in an emergency.

You may also be able to find notice accounts, where you have to give a set number of days’ notice to take your money out. These could be useful if you’re saving for something like a wedding, where you know when you’ll need the cash.

When to choose a fixed-term ISA

Basic 20% rate taxpayers aren’t taxed on the first £1,000 of savings interest. For many people, this means they won’t pay tax on a standard savings account anyway, so they might not see the point in opening a cash ISA.

However, a cash ISA could be worth considering if:

  • You’re approaching your personal savings allowance limit and don’t want to pay tax on any further interest you earn. This would be savings of around £20,000 getting 5% interest for a basic rate taxpayer.
  • You’re already paying tax on the interest from a normal savings account.
  • You’re happy to lock your cash away for a set period, but still want the option of accessing it if you need to – even if you have to pay a penalty.
  • You’re looking to boost your income over the fixed period – as some fixed-rate ISAs will pay interest monthly into a different account.

What are the advantages of a fixed-rate ISA?

Opening a fixed-rate ISA offers a range of benefits to help boost your savings:

  • They guarantee you a level of interest – the best rates are usually tied to the longer terms, but it means you can plan your finances more accurately.
  • The interest rates can be higher than other ISAs or savings accounts – if you’re looking for the best ISA rates on the market, you may find them available through fixed-rate ISAs – although this isn’t guaranteed. But typically, because you’re expected to lock your money away for longer, providers are willing to offer you better rates.
  • If interest rates go down you’ll carry on benefitting from higher fixed rates – the interest rate will stay the same for the fixed period.
  • You won’t have to pay tax on the interest you earn – this is one of the big advantages of ISAs. Not only is the interest level locked for a set term, the interest you earn is all yours to keep.

What are the disadvantages of a fixed-rate ISA?

  • If interest rates go up you could miss out on higher rates
  • You might face penalties if you try to get your money out before the end of the term
  • You may not be able to add more money after your initial deposit.

How to find a good fixed-rate ISA 

Here are some factors to consider when trying to find a good fixed-rate ISA:

The interest rate (AER)

Obviously you want the best interest rate for your savings. These are usually reserved for the longer-term ISAs, but it’s worth comparing rates from different providers to see if you can get a better deal.

The fixed interest term

If you’re willing to put your money away for a longer term, you may find higher interest rates on offer. However, you should be careful about long terms when interest rates are low.

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. Likewise, if rates are expected to go down, you might find that longer terms have lower interest rates. You’ll have to decide if the certainty of the rate is more important to you.

Access to your money

If you think there’s a chance you’ll need the money for an emergency, take a careful look at the terms and conditions for access. If you save with a fixed-rate ISA, you’ll be tying your money up for a fixed term. If you then need to withdraw your money before your term ends, you could be charged a significant fee. You may even be asked to close the account.

Compare ISAs 

Finding a good fixed-rate ISA could be easier if you compare rates, terms and potential penalties from multiple providers. With our comparison tool, you can compare cash ISAs from our panel of providers to find an account that suits your needs.

If you’re in any doubt about whether a fixed-rate cash ISA is right for you, you should take expert financial advice.

How do fixed-rate ISAs work typically?

  • After opening your account, your provider may set a fixed time for you to make your initial deposit.
  • You can deposit a maximum of £20,000 each tax year. 
  • Some ISAs will have a minimum deposit requirement. These vary between providers. Ranges of £1 to £1,000 are common.
  • You might not be able to deposit more money after your initial deposit – so check the terms carefully if you had hoped to do this.
  • Interest will be paid monthly or annually depending on the type of account.

ISA transfers

To move money from one ISA to another, for example, to get a better rate of interest, you have to follow the ISA transfer rules. If you take the money out of your account yourself to deposit elsewhere, you’ll lose the tax-free benefits.

To make a transfer, contact your new provider and fill out a dedicated ISA transfer form. They should arrange everything for you.

Not all ISA providers will accept transfers in, so check first. Some providers will only accept transfers within a fixed number of days from opening your account, so again, make sure you check this.

Early access penalties

If you want your money before that the fixed period is up, you can expect to pay a penalty – usually loss of interest for a set period.

Different ISA providers will have different rules around their penalties, including how much you’ll be charged, perhaps based on how early you’re taking your money back. This is why it’s important to be fully aware of any charges and penalties before you open the ISA.

Transferring an ISA to someone else

An ISA is an Individual Savings Account, which means it can’t be transferred between people.

It’s possible to inherit an ISA from your spouse or civil partner if they die, but this is also subject to allowance limitations. 

You can set up a Junior ISA for your child, who will then inherit the account and its funds when they turn 18. You currently can’t compare these with us.

Is a fixed-rate ISA the best option for you?

If you’re happy to lock your money away for a set period, with the security of knowing the rate won’t change, then a fixed-rate ISA could be a good option for you. Particularly if you already have an rainy day fund elsewhere you could dip into during an emergency.

However, depending on your financial situation and requirements, there are other tax-free ISA options you might want to consider:

  • Instant access, also known as easy access ISAs – for money you might need at short notice. After 6 April 2024, you’ll be able to take out more than one cash ISA from the same or different provider so long as you don’t exceed your ISA allowance for the year. So, you could split your cash ISA between fixed interest and easy access.
  • Lifetime ISAs – designed for long-term savings – either for a deposit on a home or for retirement. 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.

Frequently asked questions

What is AER?

AER stands for annual equivalent rate. The AER is one of the most important indicators used to compare savings accounts. As the name suggests, AER is used on the assumption that you’re going to put your savings away for a full year. Helpfully, it also takes into account any compound interest and any bonus introductory rates.

How many ISAs can I pay into a year?

Historically, you could only pay into more than one ISA of different types. So, you could pay into both a cash ISA and a stocks and shares ISA, for example. But you could only pay into one cash ISA.

However, from 6 April 2024, you’ll be able to pay into more than one ISA of the same type – but you can only have one Lifetime ISA.

Is my money safe in a fixed-rate cash ISA?

Fixed-rate ISAs can be a safer place to invest your money as they don’t come with the risks of stocks and shares or innovative finance ISAs. UK cash ISAs are also protected by the Financial Services Compensation Scheme (FSCS). The FSCS protects up to £85,000 per saver, per bank, building society or banking group, should the provider go bust.

Can I get a fixed-rate ISA with bad credit?

You can open an ISA regardless of your credit score. ISAs aren’t considered credit products, because, unlike a credit card or bank account, you can’t borrow or enter an overdraft on your account. This means you won’t need to pass a credit check to open a fixed-rate ISA.

Can I combine older ISAs into one?

Yes, and it might make sense to do so. Some ISAs may have introductory rates or bonuses that go down after the first year. Because you can transfer ISA accounts as many times as you like, whenever you like, you can combine any old ISAs you have and earn more interest with a new provider that can offer a better rate.

What happens at the end of the fixed-rate term?

When your fixed-rate ISA reaches the end of its term (matures), you’ll be able to get your hands on your cash without penalty.

Then it’s up to you. You could withdraw the money or transfer it to another ISA.

What happens to a fixed-rate ISA when someone dies?

If the ISA owner dies, the account becomes part of their estate, just like the rest of their savings, property and other assets. The savings in the ISA will be subject to inheritance tax like the rest of their estate.

However, if the ISA is passing to a spouse or civil partner, then there’s no inheritance tax to pay, just like other assets that make up their estate.

The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.