Compare the best fixed-rate cash ISA

Discover how fixed-rate cash ISAs work, how to find the best fixed-rate cash Isa and more.

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What is a fixed rate cash ISA?

A cash Isa is a savings account, in which you’ll pay no tax on interest earned. There is a maximum amount of money you can deposit into a cash Isa per tax year. For the 2020-21 tax-year, the maximum is £20,000. You can only deposit funds into one cash Isa, per tax year.

With a fixed-rate cash Isa, the interest rate is fixed for a specific amount of time. The longer the fixed-rate period, the higher you can expect the interest rate to be. However, you won’t be permitted to withdraw funds during this fixed-rate period.

There are plenty of cash Isas to choose from with fixed rates of one, two, three, four or five years. Cash Isas with longer fixed-rate periods are available, but they are rarer.

How does a fixed-rate cash ISA work?

You apply to open a fixed-rate cash Isa the same way you would any other type of savings account. Your bank will ask for various personal and financial details. You’ll need to make an initial deposit to open the account, although this could be as little as £1 in some cases.

You can transfer money from your old cash Isa into your new one if you wish. The rules state you can only deposit ‘new’ funds into one cash Isa per tax year.

Interest will be paid monthly or annually depending on your choice of provider. Your provider will enforce limits on deposits and withdrawals in the same way it would with any other account.

How can you add money to a fixed-rate ISA?

You can top up your Isa by depositing funds from another account, or by paying cash at your local branch.

How to find the best fixed-rate cash ISA?

First off, you’ll need to decide how long you’re happy to tie up your funds for. Remember, you’re not permitted to withdraw funds during the fixed-rate period.

Once you’ve made a decision on this, the most important factor to consider is the interest rate paid on your balance. You can find the best interest rate for your desired fixed-rate period using a price comparison website.

The only other factor you might want to consider is the provider’s policy on early withdrawals. With that said, you should be aiming to never have to withdraw your funds.

Pros and cons of a fixed-rate cash ISA

Pros

  • You’ll pay no tax on interest earned in these accounts.
  • Higher rates are available with longer fixed-rate periods.

Cons

  • There are annual limits for how much you can deposit.
  • You can’t deposit new funds into more than one cash Isa per year.
  • Early withdrawals are not permitted.

Bottom line

Fixed-rate cash Isas used to be a useful tool for savers.

However, in the present day, interest rates (and the amount of tax you could pay on savings interest) are so low that their benefits are only relevant to those with significant amounts of cash to save.

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