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The UK Government has proposed to increase the deposit protection level from £75,000 to £85,000 of eligible deposits from 30 January 2017.
If you normally deposit your whole cash ISA allowance in one go, and don’t make any withdrawals during the tax year, a 1 year fixed rate ISA could be for you.
Paying a guaranteed rate of interest, a fixed ISA can help you maximise your returns as it can pay more than a variable rate notice or easy access cash ISA, as well as more than an equivalent fixed rate bond after tax has been taken into consideration.
For example, a 2.00% 1 year fixed rate ISA is equivalent to a 2.75% 1 year fixed rate bond if you are a basic rate taxpayer (5.00% if you pay higher rate tax).
You may only be able to make a single deposit and/or transfer in to your 1 year ISA when you open the account. You might be permitted to make further deposits into the ISA, but this is only while the product remains on general sale. However, as soon as the fixed rate ISA is withdrawn from sale to new customers, you won’t be able to put any further money into it.
Although you will be able to transfer money out of your ISA, there will usually be a hefty interest penalty to pay. If you think you’ll need access to your money within the 1 year term, look instead at an ISA that will allow easy access, or penalty-free access after a notice period has been served.
Don’t open a 1 year fixed rate ISA if you think you’ll need access to your money during the term. If you make a withdrawal the interest penalty charged could mean that you’ll earn less interest on your ISA savings than if you had opted for the top paying easy access cash ISA instead.
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