The inside scoop on fixed-rate cash ISAs

A cash ISA can be an excellent way of shielding your savings from tax and can be especially useful when interest rates are high. Fixed-rate cash ISAs give you interest at a rate that’s locked in for a set period – usually from 1 to 5 years.

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 2024/2025 tax-year (which ends at midnight on 5 April), the maximum allowance is £20,000.

With a fixed-rate cash ISA, the interest rate is fixed for a specific time. The longer the fixed-rate period, the higher you can expect the interest rate to be. However, the trade-off is that you will pay a penalty to withdraw funds during this fixed-rate period. Plus, you usually can’t contribute additional funds after opening your account.

There are plenty of cash ISAs to choose from with fixed rates of 1, 2, 3, 4 or 5 years. Cash ISAs with longer fixed-rate periods are sometimes available but are rarer.

How does a fixed-rate cash ISA work?

You apply to open a fixed-rate cash ISA as 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.

On 6 April 2024, the ISA rules changed so you can now pay into multiple cash ISAs in one tax year. In the past, you could only deposit “new” funds into one cash ISA per year.

You can also transfer money between ISAs without using your allowance. But when transferring, make sure you follow the procedure laid out by your old and new cash ISA provider. Simply withdrawing from the old account and depositing it into the new one will mean you’ll lose the tax-free status on the amount that’s already saved.

Interest will be paid monthly or annually, depending on your choice of provider. Your provider will enforce limits on deposits and withdrawals just as it would with any other account.

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

You can fund a new fixed-rate ISA by depositing funds from another account or paying cash at your local bank branch (if you’re saving with a high street bank).

You are usually given a window of time to deposit new money into the account. Once that time has passed, most fixed-rate cash ISAs won’t allow you to top-up your account later.

Fixed-rate ISA providers will also normally accept transfers from an existing cash ISA. If you decide to move money from an existing ISA, make sure you follow the ISA transfer process so you don’t lose your ISA allowance used in previous years.

How to find the best fixed-rate cash ISA

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

Once you’ve decided on a timeline, 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.

Another factor you might want to consider is the provider’s policy on early withdrawals. That said, aim never to have to withdraw your funds.

Pros and cons of a fixed-rate cash ISA

Which are the best fixed-rate cash ISAs at the moment?

Our best fixed-rate cash ISAs are the highest interest rates available. To get the latest rates, we use Moneyfacts data, which covers nearly the full market of savings products and is checked and updated daily. We don’t include accounts from private banks.

All the cash ISAs in our list have savings protection – for most, this is the Financial Services Compensation Scheme (FSCS). Other schemes include NS&I, which is 100% backed by HM Treasury, and the Gibraltar Deposit Guarantee Scheme.

• Virgin Money – 1 Year Fixed Rate Cash ISA Exclusive Issue 13 - 5.05%
• Shawbrook Bank – 1 Year Fixed Rate Cash ISA Bond Issue 102 - 4.96%
• UBL UK – 1 Year Fixed Rate Cash ISA - 4.95%
• Castle Trust Bank – Fixed Rate e-Cash ISA - 4.94%
• Cynergy Bank – Loyalty Fixed Rate Cash ISA - 4.94%

Fixed-rate ISA or fixed-rate bond?

There are some key differences between these 2 account types:

• Interest earned in an ISA product is not taxable.
• You can pay up to a maximum of £20,000 per tax year into a cash ISA, while the bond provider sets the maximum for a fixed-rate bond and typically runs into hundreds of thousands.
• Banks are legally obliged to let you access your funds held in an ISA at any time (but they can charge you a penalty to do so). By contrast, funds held in bonds are typically only released early if the account holder passes away or goes bankrupt.
• Interest rates tend to be higher on fixed-rate bonds, compared to fixed-rate ISAs. However, this isn’t always the case, so it’s worth checking both for the term you have in mind.

There are also plenty of similarities. For example, you’re guaranteed a specific rate for an agreed term with both account types, and you usually can’t add more money during the term.

An overview of our fixed-rate cash ISAs comparison

Bottom line

In the past, interest rates were so low that the benefits of cash ISAs simply weren’t meaningful for most people because very few savers would exceed their personal savings allowance. But now that interest rates are high, more savers are likely to get caught out by tax, meaning cash ISAs are relevant again.

If you have a lump of cash ready to invest in one and don’t think you’ll need it for a while, a fixed-rate cash ISA could allow you to access some of the best rates in the market.

Where interest rates will be in 2 to 5 years is hard to call, however, so fixing for longer periods won’t be for everyone.

Frequently asked questions

• How many cash ISAs can I have?

  Before 6 April 2024, you could only open and deposit money into one cash ISA in a tax year, but the rules have now changed to allow you to pay into multiple cash ISAs.

• What is the annual ISA allowance?

  For the 2024/2025 tax year, you can pay up to £20,000 into an ISA. You can save this amount into one type of account or split it across some or all of the different types of ISA (cash, stocks and shares, lifetime and innovative finance ISA).

To make sure you get accurate and helpful information, this guide has been edited by Holly Jennings and reviewed by Katherine Denham, a member of Finder's Editorial Review Board.

Written by

Matthew Boyle

Publisher

Matthew Boyle is a banking and mortgages publisher at Finder. He has a 7-year history of publishing helpful guides to assist consumers in making better decisions. In his spare time, you will find him walking in the Norfolk countryside admiring the local wildlife. See full bio

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Matthew has written 244 Finder guides across topics including:

• Helping first-time buyers apply for a mortgage
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