A simples guide

Fixed-Rate ISAs

 The world of ISAs has become confusing lately, especially with the government initiative to allow £1000 of tax-free savings. There is still a place for fixed-rate and fixed-term ISAs, but you need to shop around to get the best deals and make sure your money is working for you. If you’re going to lock your money away for a set period then you need the best value, so use our comparison service and see exactly which is the best Fixed-Rate ISA for you.

Share

What is a fixed-rate ISA?

Put simply, a fixed-rate ISA means your money is fenced off for a fixed time, normally one, two or five years and for that period of time you will earn a fixed rate of interest. If you agree to a longer term then you could get a better return, but you need to know that you normally cannot access your money before the fixed term ends. If the financial institution does let you take a portion of your money out early, then you might have to pay a penalty. So check the terms and conditions on any policy very carefully, especially if you’re thinking of taking a five-year term.

Remember this needs to be savings that you do not need to access and can afford to do without for the whole term of the ISA, but your money (including the interest) is protected from the taxman.

Now it’s just down to you to shop around and get the best deal. Of course the easiest way to do that is with our price comparison service. 

piggy bank

Should I go for short or long term fixed-rate ISAs?

This will depend on your personal circumstances and how long you’re willing to lock your money away for.  A short-term fixed-rate ISA could be an ideal way to dip your toe in the water and earn a higher rate of interest over the short term than an easy access ISA. That said, if you know for sure that you won’t need the money for a while, you could get a better return if you lock away your funds for longer.

There is another variable, however. The interest rate is at its lowest for decades right now and that could change. If it does and the interest rate increases, then your funds will still be locked up at the rate you agreed to when you took out the ISA, and you won’t be able to move it to a higher rate account unless you pay a penalty, so it’s always best to check your account restrictions.  Given the possibility that this could happen, a short term fixed rate ISA that matures in one or two years might be the best option.

If you’re in any doubt you should take expert financial advice. Just be aware that every financial decision carries an element of risk and even the world’s finest economists cannot see what is round the corner so only lock away money you’re sure you can live without. 

calculator and coins

What are the advantages of a fixed-rate cash ISA?

Fixed-rate cash ISAs give you a set return, you know what you’re getting, and they afford a certain level of income tax protection. They also give the bank working capital to lend out to customers, so it works for both sides.

Just remember for this tax year (to 5th April) there is a £15,240 annual pay in allowance with any ISA. That’s the maximum amount you can pay into the account in each tax year. So if you have paid in say £5,000 and then take this money out you only have an allowance left of £10,240. However, the Government have announced a massive increase in 2016-2017 tax year. If you start an ISA on or after April 6th 2016, you’ve got until 5th April 2017 to save up to £20,000 allowance.

Check our site carefully, go through a comparison and then decide what works best for you. You might be shocked to see there is a better value alternative out there so get comparing and see how much you could save!

Looking for a Quote?

Compare saving accounts in seconds and start saving

get a quote