Fixed Rate ISA Best Buys

• Fixed rate cash ISAs tend to pay higher rates than easy access or notice period ISAs
• Make sure you can commit your money for the full term
• Once withdrawn from sale to new customers you can’t make further additions
• Not all fixed rate ISAs accept transfers in from existing ISAs
• You can hold more than one cash ISA at a time (but you can’t open more than one per tax year)

Fixed rate ISAs pay a set amount of interest over a specific term. Because the bank or building society knows that your money will be invested with it for the duration of the term, it can afford to pay you a higher interest rate than on an easy access ISA where it has no such certainty.

Think about whether you’ll need to access your money during the term as there can be large interest penalties if you need to get at your funds early.

You can hold more than one cash ISA at a time, although you can only open one new cash ISA per tax year (6th to the next 5th April). So you can have a fixed rate ISA for money you don’t need access to, as well as an easy access ISA.

Depositing into a fixed rate ISA…

In the 2013-14 tax year you can deposit up to £5,760 into a cash ISA. You can also transfer across previously accumulated cash ISA funds into a fixed rate ISA. However, not all ISAs allow transfers in from existing ISA accounts so be sure to check this before opening.

Once opened and the initial deposit and/or transfer is made, you may not be able to make any further additions to your fixed rate ISA. Sometimes a provider will allow you to make further contributions while the ISA remains on general sale, but once it is withdrawn you will be unable to add to your pot.

Early access penalties…

IYou can access your money from a fixed rate ISA but this will be at the expense of a penalty.

• All cash ISAs allow you to transfer your money into another ISA, at any time.
• However, they don’t have to allow you to be able to withdraw your money directly (in order to make a withdrawal you might have to transfer your money to an easy access ISA first).

If you do need to access money held in a fixed rate ISA before the end of its term you will forfeit a fair amount of interest. Generally interest penalties will be a flat amount, or a tapered amount depending on when during the term you need to access your cash. Less commonly, some ISAs may charge a flat fee instead, such as £50. While this might at first glance appear off-putting, on larger balances £50 could actually be cheaper than an interest penalty.

Although early access penalties are an important feature of a fixed rate ISA, you shouldn’t open one if you think you might need access during the term.

If you do withdraw your money from an ISA, you may not be able to replace it later. You can only put up to £5,760 into a cash ISA in the 2013-14tax year, regardless of how much money you withdraw.

What next?

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