Fixed ISA Rates At Highest Level Since Start Of 2021 | will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by will always be from Be Scamsmart.

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Derin Clark

Derin Clark

Online Reporter
Published: 10/11/2021

ISA rates have continued to rise this month, resulting in average rates on one, two and five year fixed ISAs reaching their highest level since the start of the year.

The average rate on five year fixed ISAs has seen the biggest increase during 2021, rising by 0.40% since January to stand at 1.26% today.

Two year fixed ISAs have seen an increase of 0.23% since the start of January, now standing at a current rate of 0.73%.

Meanwhile, the average rate on one year fixed ISAs has risen by 0.10% since the start of the year and now stands at 0.57%.

Although average rates have been rising this year, those coming to the end of a fixed rate deal may continue to struggle to find a new deal that is able to match or beat their current rate.

For example, a year ago the average rate on a one year fixed deal stood at 0.58%, which is 0.01% higher than the average rate on one year fixed ISAs today.

Two years ago the average rate on a two year fixed ISA stood at 1.18%, which is 0.45% higher than the average two year ISA rate today and savers looking to beat this rate would have to, instead, opt for a five year ISA which is 0.08% higher.

Those coming to the end of a five year fixed ISA deal, however, will see that today’s average five year fixed rate is 0.12% higher than the average rate of a five year fixed ISA in 2016, which stood at 1.14%.

Why are ISA rates rising?

Although the Bank of England has not yet increased base rate, Derek Sprawling, savings director at Paragon Bank, explains that this could be contributing to the rise in ISA rates. He said: “Over the course of the last few months, we’ve noted a steady uptick in rates across the savings market. The trend originated in the fixed rate non-ISA space and we are now also seeing increases across easy access products and within the ISA category. There are a few factors driving up rates within the fixed rate ISA space specifically.

“Firstly, there has been anticipation of an upcoming Bank of England base rate increase, which has had an impact on rates as a whole since the summer. The savings market is forward looking, which is why the rates now available in the best-buy tables are no longer reflective of the base rate.

“There is also a growing diversification trend among established players in the market, where the focus has switched to targeting ISAs rather than compete with some small, very specialised providers that operate solely in the fixed rate bond market. The price increases on fixed rate ISAs reflect that, but rates are unlikely to match those offered on bonds because all fixed rate ISAs must allow a level of access due to transfer allowances, which has an impact on rates offered.”

Inflation warning for long term savers

Savers considering locking into a long-term fixed rate ISA should keep in mind that next year the Bank of England projects that inflation will rise to 5%. At the moment there are no savings accounts or ISAs that come close to matching this rate of inflation, which could see the value of savings erode in real terms as a result.

Although for many savers the security of holding their money in a savings account is worth the risk of the negative impact of inflation on their savings, those prepared to take a riskier option may want to consider a stocks and shares ISA instead.

A stocks and shares ISA can result in investors earning better returns compared to interest earned on savings accounts, but this option has the risk of investors not making any returns at all and, in some circumstances, can result in them losing all their money. Due to the risks involved with investing it may be worthwhile speaking to an independent financial adviser to discuss the best options.

More information about this type of investing can be found on our stocks and shares ISA page.


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