Fixed-rate cash ISAs

Fixed-rate cash ISAs give you tax-free interest at a rate that’s locked in for a set period – usually from one to five years. Here’s how they work and how to find today’s best deals.

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 2023/2024 tax-year (which ends at midnight on 5 April), the maximum allowance 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, the trade off is that you usually won’t be permitted 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 one, two, three, four or five 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 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. When transferring this money, 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 already saved.

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 fund a new fixed-rate ISA by depositing funds from another account, or by paying cash at your local bank branch (if you’re saving with a high street bank). Fixed rate ISA providers will also normally accept transfers from an existing cash ISA.

However, most (but not all) fixed-rate cash ISAs won’t allow you to “top-up” your account later.

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

I already fixed at a lower rate… should I switch?

You can use the calculator below to estimate wether it would be worth paying the get-out penalty on your existing fixed-rate ISA, in order to open a new one at a better rate.

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 that of NS&I, which is 100% backed by HM Treasury, and the Gibraltar Deposit Guarantee Scheme.

• UBL UK – 2 Year Fixed Rate Cash ISA - 4.55%
• Virgin Money – 3 Year Fixed Rate Cash E-ISA Issue 585 - 4.55%
• Virgin Money – 2 Year Fixed Rate Cash E-ISA Issue 584 - 4.51%
• NatWest – 2 Year Fixed Rate ISA Issue 323 - 4.5%
• Royal Bank of Scotland – 2 Year Fixed Rate ISA Issue 323 - 4.5%

Fixed-rate ISA or fixed-rate bond?

There are some key differences between these two account types:

• Interest earnt 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 maximum for a fixed-rate bond is set by the bond provider, and typically runs into hundreds of thousands.
• You can only pay into 1 cash ISA in a tax year. You can pay into as many bonds as you like.
• Banks are legally obliged to let you access your funds held in an ISA at any time (but they can charge you a penlty to do so). By contrast, funds held in bonds are typically only released early in the event of the account holder passing away or going bankrupt.
• Interest rates tend to be higher on fixed rate bonds, compared to fixed-rate ISAs. This isn’t always the case however, so it’s worth checking both for the term you have in mind.

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

An overview of our fixed-rate cash ISAs comparison

Bottom line

Fixed-rate cash ISAs are relevant again!

In recent years, interest rates (and the amount of tax you could pay on savings interest) were so low that the benefits simply weren’t meaningful for most people.

But with rates on the rise, cash ISAs make sense again. If you have a lump of cash ready to invest in one, and you don’t think you’ll need it for a while, then a fixed-rate cash ISA could allow you to access the best rates going.

Where interest rates will be in 2-5 years time 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?

  You can hold several cash ISAs, but crucially you can only open and deposit money into one cash ISA each tax year.

  Because most fixed-rate cash ISAs don’t allow you to add more money during the fixed term, in the subsequent tax year you may opt to open another cash ISA.

• What is the annual ISA allowance?

  For the 2023/2024 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).