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 type of 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 ISA rates with longer agreed terms.

As with all ISAs:

  • you can pay in up to your ISA allowance each tax year – in 2022/23, that’s £20,000
  • you don’t have to pay tax on any interest you earn. 

Once you’ve deposited 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.

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 probably have to pay some hefty penalties.

What types of fixed-rate cash ISAs are available?

Fixed-rate cash ISAs are broken down by the terms they carry. You can usually expect providers to offer you accounts on a one to five-year basis, but this can vary. These offer you a choice between flexibility and profitability. The longer-term ISAs tend to offer you a better interest rate, but expect you to tie your money up for a longer period, while a shorter-term ISA means you won’t have to wait as long to access your money again, along with the interest earned.

When to choose a fixed-rate ISA

Usually, it’s best to 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 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

Finding the right fixed-rate ISA is unique to your financial situation, so there isn’t exactly a one-size fits all.

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. 

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 -  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. You should also consider how comfortable you are with locking your money away for a longer period. If you’re looking to make any serious financial commitments in the near future, you may need something with greater flexibility or access.
  • 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.

Depositing into a fixed rate ISA

You’ll have 14 days to deposit a lump sum into your fixed rate ISA. Currently, the limit for ISA deposits is £20,000. Which means you can’t deposit more than this each year. This limit applies to all ISAs you have open, so choose wisely. Once a year has passed, you can deposit up to another £20,000 again. However, if you’re using an ISA transfer, between different existing accounts, this won’t count towards your yearly deposit limit, which can be a handy get around.

Some ISAs will also have a minimum deposit requirement. These are different between providers, ranges of £1 to £1,000 being common.

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.

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 a fixed-rate 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. 

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 are a safe place to invest your money. With ISAs, risks are only greater with stocks and shares or innovative finance ISAs, where you’re having to manage risks with either the stock market or peer-to-peer lending. To keep your money safe, it’s better to invest in a fixed-term or standard cash ISA.

Like any account provider, you’re never completely risk free. If your ISA provider were to go under, your account could be at risk. However, the Financial Services Compensation Scheme will protect your investment up to £85,000. Therefore, if you’re investing more than this, your best way of protecting yourself is by spreading your money across different ISAs providers or assets. Keep in mind, you can only open one ISA per tax year.

How do early access penalties work?

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.

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.

Can I have more than one fixed-rate cash ISA?

Yes, you can open as many ISAs as you’d like. You should keep in mind that you can only pay into one ISA a year though, which can make owning multiple ISAs slightly more complicated. However, to protect larger investments, you may want to spread your money around different providers, to ensure the Financial Services Compensation Scheme FSCS) protects you, up to the value of £85,000. Opening multiple ISAs can also diversify your portfolio, allowing you to have a fixed-rate ISA alongside a stocks and shares 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.