What is a Fixed Rate ISA?
A Fixed Rate ISA is a type of savings account where you earn a Fixed Rate of interest on your savings for a set period of time. Anyone over the age of 18 can open one and save up to £20,000 a year in it without paying tax on their interest.
Withdrawing funds before maturity will incur a charge. Partial withdrawals from a Fixed Rate ISA are restricted. Tax treatment depends on individual circumstances and may be subject to change in the future
How do Fixed Rate ISAs work?
Fixed Rate ISAs are similar to other types of ISAs, like a Cash ISA or a Lifetime ISA in that they protect your savings interest from tax by placing them in a tax-free wrapper, helping you make the most of competitive interest rates and grow your savings faster. The biggest difference between Fixed Rate ISAs and other ISA types is that your interest rate will be fixed for a set period of time, meaning it won’t change for the agreed time-frame, usually between 1-5 years. In return for getting a fixed interest rate, you won’t be able to make any withdrawals during this period. So if you need flexibility, you may be better suited to an easy access cash ISA.
If you’re a basic-rate or higher-rate taxpayer, some of the interest you earn in other accounts like a current account will already be tax-free, thanks to the Personal Savings Allowance (PSA). But, if the amount of interest you earn exceeds your personal savings allowance, any interest above your limit will be taxed — unless you place your savings in an ISA!
How to choose a Fixed Rate ISA
To find the right Fixed Rate ISA for you, it’s a good idea to compare a few different options online. You’ll need to decide how long you’d be comfortable looking your money away for, as well as look into factors like how much you’ll pay for early withdrawals or closure of the account and what interest rates different providers are offering. Keep in mind that the best rates may not be offered by high street banks, so it’s worth considering smaller providers who may have more competitive rates.
We’ve gone into more depth on each of these deciding factors below:
How long would you like to lock your money away for?
Fixes vary from one provider to another, but you can usually find terms ranging from 1 year to 5 years. Longer-term fixes tend to offer higher interest rates. However, if interest rates are expected to fall, shorter-term deals might temporarily offer more competitive rates as providers try to lock in savers before cuts take effect.
How much will you pay for early withdrawals or account closures
If you need to withdraw your money before the end of your fixed term, you’ll usually have to pay a penalty and close your account. The exact amount you’ll be charged can vary depending on your chosen provider and ISA. It’s important to make sure you’re happy with the terms before applying for the account.
Compare interest rates
It can be tempting to open an ISA with a provider you already bank with, but this could see you missing out on a better interest rate elsewhere. High street banks and building societies don’t always offer the most competitive rates, so it’s a good idea to compare ISAs from modern app-based providers too.
Fixed Rate ISA not for you? Consider other types of ISA
Fixed Rate ISAs can be a great way to protect your savings from falling interest rates, but they won’t be right for everyone. If you need flexibility, consider another type of ISA like an easy access Cash ISA instead.
Can you open multiple ISAs?
Yes, you can open multiple ISAs in the same tax year and spread your savings across them, as long as you don’t exceed your £20,000 ISA allowance. For example, you could open a Fixed Rate Cash ISA to protect your savings from falling interest rates, and an easy access Cash ISA so you have the freedom to make withdrawals if and when you need to.
If you’re saving for your first home or retirement, you could open a Lifetime ISA too, where you can save up to £4,000 of your annual ISA allowance each year. In fact at Tembo, we offer the market-leading interest rate on our Cash Lifetime ISA - over 5 years, that’s over £800 more than the nearest market competitor.
If you’d like to invest, there are Stocks & Shares ISAs and Innovative Finance ISAs to choose from, which make it easy to invest. Read more here
Learn more: How many Cash ISAs can I have?
Ineligible Lifetime ISA withdrawals may return less than paid in. Past performance is not a reliable indicator of future results. Capital at risk.
How to make deposits into a Fixed Rate ISA
How you’ll make deposits to your Fixed Rate ISA will depend on your account’s terms and conditions. Most providers will only let you make one lump sum payment when you first open your Fixed Rate ISA. Others might let you make multiple deposits up until a certain date, for example, you may be able to keep adding money for up to 30 days after your ISA has been opened.
We’re planning to do things a little differently at Tembo. We’ll soon be launching a Fixed Rate ISA with a twist. You can open the account with a lump sum, and your savings will earn the guaranteed interest rate set from the beginning, just like any other Fixed Rate ISA. But if you’d like to make further contributions over the course of your fixed period, you can, and those additional contributions will earn the rate of interest advertised at that time!
What happens when the fixed term ends?
When your fixed term ends (known as ‘maturity’), your provider will usually move your money into a default easy access ISA, often with a lower interest rate. To keep earning a competitive rate, make sure you review your options and consider switching to a new ISA.
Is my money safe in a Fixed Rate ISA?
Yes, as long as your ISA provider is regulated by the Financial Conduct Authority (FCA) and covered by the Financial Services Compensation Scheme (FSCS), your savings are protected up to £85,000 per person, per provider.
Can I transfer an existing ISA into a Fixed Rate ISA?
Yes, many providers allow ISA transfers, but not all. Always check the terms before applying. If allowed, transferring won’t affect your £20,000 ISA limit for the current tax year, so it can be a smart way to move older ISAs into higher-interest accounts.
