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Eligible deposits with UK institutions are protected by the Financial Services Compensation Scheme up to a maximum level of protection of £85,000 per person per institution.
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 following 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 that you can add funds to and withdraw from, provided they are taken out in different tax years.
In the 2016-17 tax year you can deposit up to £15,240 into a cash ISA. You can also transfer across previously accumulated ISA funds into a fixed rate ISA. However, not all ISAs allow transfers in from existing 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you to make further contributions for a limited period and/or while the ISA remains on general sale, but once it is withdrawn you will be unable to add to your pot.
You can access your money from a fixed rate ISA but this will usually be at the expense of a penalty.
Either way, if you do need to access money held in a fixed rate ISA before the end of its term, you could well have to forfeit a fair amount of interest. Generally, interest penalties will be a flat amount, or a tapered amount depending on when you need to access your cash and the length of term remaining. 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 a £50 fee 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.
Also, remember that if you do withdraw your money from an ISA rather than following the transfer process, you may not be able to replace it later. You can only put up to £15,240 into a cash ISA in the 2016-17 tax year. Some ISAs will now allow you to withdraw and replace funds provided that the total invested doesn’t exceed the ISA limit. Not all providers will allow this flexibility.
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