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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 a tax-free savings account 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. You can expect to get the best fixed-ISA rates with longer terms.

As with all ISAs:

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

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Once you’ve put money into your ISA (you’ll have two weeks to deposit as much as you like), 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’ll need to pay a significant exit fee.

Fixed-term vs instant access cash ISAs?

Fixed-rate cash ISAs pay a set level of interest for 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.

With an instant access cash ISA, you can access your money whenever you want, without penalty. However, interest rates can change, and may not pay as much as a fixed-rate account.

When to choose a fixed-term ISA

Since the introduction of the personal savings allowance in 2016, basic 20% rate taxpayers aren’t taxed on the first £1,000 of savings interest. For most 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 might still 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.
  • You’re already paying tax on the interest for 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.

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 are usually higher than other ISAs or savings accounts – if you’re looking for the best ISA rates on the market, you’ll usually find them available through fixed-rate ISAs. Because you’re expected to lock your money away for longer, providers are willing to offer you better rates.
  • You won’t be charged tax on the interest you earn – this is one of the big advantages of a fixed-rate ISA. Not only is the interest level locked for a set term, the interest you earn is all yours to keep.
  • They’re free – unlike some current or savings accounts, opening a fixed-rate ISA is completely free, with no monthly account charges.

How to find a good fixed-rate ISA 

Here are some things 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 the rates on offer to see if you can get a better deal between different providers.
  • The term –  if you’re willing to put your money away for a longer term, you’ll generally 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.
  • 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 enter 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’ll be charged a significant fee.
  • Compare ISAs – finding a good fixed-rate ISA is easier if you can compare rates from multiple providers. With our comparison tool, you can compare rates and terms from our panel of providers, to find an account that suits your needs.

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

What are the rules around fixed-rate ISAs?

Deposits

After opening your account, you’ll have 14 days to deposit a lump sum into your fixed-rate ISA.

You can deposit a maximum of £20,000 each tax year.
Some ISAs will also have a minimum deposit requirement. These are different between providers, ranges of £1 to £1,000 are common.

Opening multiple ISA accounts

You can open as many ISAs as you’d like. Keep in mind that you can only pay into one ISA in a tax year though. If you want to transfer money from one ISA into another, make sure you follow the transfer rules. Don’t just take the money out of your account, as you’ll lose the tax-free benefits. You’ll need to contact your provider and fill out a dedicated ISA transfer form.

Withdrawals

Fixed-rate ISAs normally 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.

Early access penalties

Because with a fixed-rate ISA, you’re agreeing to lock your money away for a set period, your account provider will have plans to invest your money in their other services. So if you were to come asking for it before that time was up, that causes a problem for them. This is why they have early access penalties, because you’re essentially calling the deal off.

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 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. 

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.

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

  • 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.

Frequently asked questions

What is AER?

AER stands for annual equivalent rate. The AER is one of the most important things 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.

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 or building society, should the provider go bust.

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

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 and can open an account, regardless of your credit score.

Can I combine older ISAs into one?

Yes and, in many cases, it makes sense to do so. ISAs tend to lose a large amount of their interest potential after the first year, which makes sticking around after the introductory rate expires no longer worthwhile. 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, transfer it to another ISA, or re-invest in a new cash 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.