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Saving in a fixed rate ISA has the additional benefits of appealing interest rates and security – if you think rates are going to go down soon, you can lock into a higher rate for a year or more. This can be especially beneficial for existing ISA pots that might be currently languishing in easy access accounts paying low rates.
Banks and building societies feel comfortable paying a higher interest rate on fixed rate ISAs than on an instant access ISA, because they know that your money will be invested with them for the duration of the term. Easy access ISAs offer no such guarantee.
Anyone over the age of 16 who is resident in the UK can open a cash ISA. However, you will only be able to open one cash ISA per tax year, and this includes Help to Buy ISAs. So, if you're just starting out, you'll have to decide whether you want to get a fixed rate cash ISA first, or an easy access version. Some providers allow you to invest in both fixed and variable rates within the same ISA account which can give extra flexibility; check the product details closely.
Any cash ISAs opened in previous tax years are irrelevant, as you can have as many ISAs as you want – provided you adhere to the general ISA restrictions. Note that you can open a cash, stocks & shares, innovative finance and lifetime ISA in the same tax year, as long as you don't exceed the overall ISA allowance, as these are considered separate ISA types. A Help to Buy ISA, however, is considered a cash ISA.
Once you've decided on the best fixed rate cash ISA for you, simply contact the provider to find out what you need to do. The providers' permitted account opening methods are clearly displayed on our results section, and some accounts may even have a orange button that makes it easy for you to click through and apply.
The annual ISA allowance for both the 2020-2021 tax year and 2021-2022 has been set at £20,000. This means you can put this amount of new money into an ISA during the tax year. However, you can still transfer previously accumulated ISA funds into a new fixed rate ISA, so you're not entirely limited to the annual allowance. Having said that, not all ISAs allow transfers in from existing accounts, and those that do allow ISA transfers in may not allow them from all account types, so be sure to check this before you decide.
Once you've opened an account and the initial deposit and/or transfer has been 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. Always check the details so you know what your options are.
You can withdraw your money from a fixed rate ISA, but this will usually 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 withdraw your money directly (in order to make a withdrawal, you may have to transfer your money to an easy access ISA first)
Either way, if you do need to access money held in a fixed rate ISA before the end of its term, you may well have to forfeit a fair amount of interest. Generally, interest penalties will see you lose a set number of days' interest, although some providers ask for 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. Just remember that early access penalties can be a common feature of fixed rate ISAs, so you may want to look elsewhere, such as at a variable rate ISA, if you think you might need access during the term.
If the holder dies before the fixed ISA matures then it will no longer qualify as an ISA from the date of death. Any beneficiaries from the account-holder’s estate will not be able to access the funds until either their executor closes it or the administration of their estate is completed.
While there will be no Income Tax or Capital Gains Tax payable up to that date the ISA will form part of your estate for the purposes of Inheritance Tax.
If you are survived by a spouse or civil partner then they can inherit your fixed rate ISA and retain the tax benefits, but this must be done within three years of the holder’s death.
You'll want to pick the term of your ISA based on when you may want access again. If you think rates will rise in the near future, you may want to go for a one-year ISA, whereas if rates are likely to go down, you’ll want to secure your rate for as long as possible.
Once you've picked a term, all that's left is to compare fixed rate ISAs on the basics: rate, investment limits, accessibility and account management options. Remember that the best rate ISA isn't automatically the most suitable for you, depending on its other features.
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This guide outlines the pros and cons of investing in an ISA or pension.
An overview of what ISA season is and how it impacts your savings
ISAs have restrictions on how much you can put in each tax year and when you’re allowed to open a new account versus move your funds. To help, we’ve gathered together information on the 2021/22 tax year’s ISA allowance, as well as many other important taxation considerations.
A short guide detailing the 2021-22 ISA allowances.