Why take out a 1 year fixed rate ISA? - ISAs - News - Moneyfacts

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Why take out a 1 year fixed rate ISA?

Why take out a 1 year fixed rate ISA?

Category: ISAs

Updated: 05/02/2013
First Published: 05/02/2013

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Fixed rate ISAs should pay a higher rate of interest than their easy access counterparts.

Is that not the way savings accounts work? Surely the longer you are prepared to commit your money, without access, the higher the rate you achieve?

Wrong!

At the moment we're in the bizarre situation where the top easy access ISAs are offering 0.25% more than the top 1 year fixed at 2.25%.

Top 3 Rates Easy Access ISA Top 3 Rates 1 Year Fixed ISA

Cheshire Building Society
ISA Saver (Issue 1)

2.50%


Metro Bank
1 Year Fixed Rate
Cash ISA (Issue 5)

2.25%

Danske Bank
Cash ISA

2.25%


Nationwide Building Society
1 Year Fixed Rate ISA

2.05%

Harpenden Building Society
Simply ISA

2.25%


Derbyshire Building Society
Fixed Rate ISA
Issue 60

2.05%

One explanation for easy access ISAs paying more than fixed rate ISAs is because many variable rates include introductory bonuses.

Designed to boost the initial rate, introductory bonuses often account for a large portion of the overall rate, meaning that the rate will reduce significantly once the bonus expires after twelve months.

For example, an easy access ISA paying 2.50% with a bonus of 1.00% will revert to 1.50% once the introductory period runs out.

It is always a good idea to contact your provider close to the time of your bonus expiring to avoid the disappointment of reverting to a lower rate of return.

Despite the top variable rate ISAs paying higher rates, fixed ISAs offer the reassurance of receiving a set tax-free rate over a short period, without any added bonuses.

This means the rate of return will remain unaffected in the event of interest rates falling even lower, should it ever occur.

What next?
Compare easy access cash ISAs
Compare 1 year fixed rate ISAs
Search all cash ISAs

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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