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Best Fixed Rate Cash ISAs For UK Savers

If you have acquired enough savings to lock away a pot of cash for one to seven years, then finding a Best Fixed Rate Cash ISA might be the perfect saving vehicle for you.

What is a Fixed Rate Cash ISA?

Looking at a Best Fixed Rate Cash ISA is a saving account that is formulated to lock your money away for a set period of time, earning interest, tax free. Locking your money away like this achieves several objectives. Firstly, because of the reduced amount of administration on this kind of account, they often offer higher AER than their flexible counterparts allowing you to maximise your returns. They also offer security in the interest rate, as this is fixed for the term of the ISA. Lastly, locking your money away like this removes all spending temptation and acts to secure those funds for your future.

That being said, Cash ISAs by law have to give you access to your money at a time of your choosing, therefore, you can withdraw your funds, however, this will usually come with a heavy penalty in the case of a Fixed Rate Cash ISA.

Best Fixed Rate Cash ISA Interest Rates

Of all the types of Cash ISA on offer, the best Cash ISA for interest rates is the Fixed Rate Cash ISAs. However, the rate you are offered largely depends on both the provider, and the length of the term. We compare fixed rate providers for each term and identified some of the best rates available in a Fixed Rate ISA today.

Please note: Rates correct at 15/01/2020. Please check latest rates with individual providers.

Best 1 Year Fixed Rate Cash ISA

Provider AER Min. Opening Balance Transfer In?
Punjab National Bank 0.70% £100 In Branch
Al Rayan Bank 0.65% expected profit rate £1,000 Online
Shawbrook Bank Cash ISA Bond Issue 43 0.60% £1,000 Online
Saffron Building Society 1 Year 0.60% £500 Branch, Post Online
Family Building Society 0.55% £1,000 Branch or Post
Skipton Building Society 0.50% £500 Branch, Phone, Post
Dudley Building Society 0.50% £100 Branch, Post, Phone
Monmouthshire Building Society 0.49% £3,000 Branch or Agency
Gatehouse Bank 0.45% £1,000 Online

Best 2 Year Fixed Rate Cash ISA

Provider AER Min. Opening Balance Transfer In?
Gatehouse Bank 0.80% £1,000 Online
Saffron Building Society 0.80% £500 Branch, Post, Online
Secure Trust Bank 0.75% £1,000 Online
Al Rayan Bank 0.75% expected profit rate £1,000 Online
Shawbrook Bank Cash ISA Bond Issue 43 0.66% £1,000 Online
Family Building Society 0.65% £1,000 Branch or Post
Skipton Building Society 0.60% £500 Branch, Phone, Post
Dudley Building Society 0.60% £100 Branch, Phone, Post
Monmouthshire Building Society 0.59% £3,000 Branch or Agency

Best 3 Year Fixed Rate Cash ISA

Provider AER Min. Opening Balance Transfer In?
Gatehouse Bank 0.90% £1,000 Online
Secure Trust Bank 0.80% £1,000 Online
Family Building Society 0.75% £1,000 Branch or Post
Shawbrook Bank Cash ISA Bond Issue 24 0.75% £1,000 Online
Skipton Building Society 0.65% £500 Branch, Phone, Post
Principality Building Society 0.60% £500 Online, in Branch

Best 4 Year Fixed Rate Cash ISA

Provider AER Min. Opening Balance Transfer In?
Punjab National Bank 1.00% £100 In Branch, Post

Best 5 Year Fixed Rate Cash ISA

Provider AER Min. Opening Balance Transfer In?
Gatehouse Bank 1.30% £1,000 Online
Punjab National Bank 1.20% £100 In Branch, Post
United Bank UK 1.15% £2,000 Branch or by Post
Shawbrook Bank Fixed Rate Cash ISA Bond Issue 1.10% £1,000 Online

Where Should I Put My Savings?

The AERs (Annual Equivalent Rates) listed above are likely to be the best rates you can source on a Cash ISA. Therefore, if you don’t need your money for the near future, and are earning over and above the personal allowance, then it makes sense for you to enjoy the tax benefits of a Fixed Rate ISA.

However, for smaller pots that will generate an income that falls within the personal allowance, it may prove more profitable to find a cash savings account that offers a good interest rate. Of course there is nothing to stop savers from enjoying the higher interest rates in a cash savings account and then transferring all their allowance into a Fixed Rate ISA just before the financial year comes to an end in order to avoid any taxes on income generated from those savings.

Another way to increase your returns on savings is to invest your money in a Stocks and Shares ISA. Whilst there is a lot more risk involved when investing your cash and no guarantees that you will get back what you put in, historically Stocks and Shares ISAs have resulted in better rewards over time.

What is The Best Interest Rate Available For Savers?

The best interest rate available is not within an ISA, but can be found in a Regular Savers Account. A Regular Savers Account is an account that requires the account holder to deposit a sum of money every month into the account on which interest is paid at the end of the year. These accounts often come with strict terms which you should ensure you are familiar with before you open an account. The best AERs currently available are with NatWest and RBS who are both offering 3.04%, a substantial increase from the top interest rate offered on a Fixed Term ISA or any cash ISA rates.

Which is The Best Stocks and Shares ISA?

The answer to this largely depends on what sort of investor you are and how much money you wish to invest.

For a low cost option you won’t find better value than Vanguard, although with Vanguard you can only invest in their own funds. That being said, Vanguard funds have historically performed well.

For the more experienced investor looking for an extensive range of investments with which to build your own portfolio, we would recommend Interactive Investor. Interactive Investor offers a cost effective service which is ideal for medium to large portfolios. However, the fixed fee means that investors with a small portfolio are likely to pay over the odds at Interactive Investor.

Interactive Investor ISA Comparison

If you are new to investing or feel you lack the time or knowledge to get a handle on your investments, then you may want to consider a completely managed provider. Nutmeg is an excellent solution for this kind of investment, offering a low cost app, that utilises a simple questionnaire to match you with a ready-made portfolio.

Can I Lose Money in a Stocks and Shares ISA?

Definitely, by its very nature the Stock Market is a volatile beast and the value of your investments is likely to go up as well as down. However, with time, it is possible to ride out any volatility in the market and enjoy decent returns on your investments.

This is the reason we recommend you don’t engage in investing unless you are happy to lock your money away for five years minimum and never invest more than you can afford to lose.

Are ISAs Worth It in 2021?

The UK government has estimated that 95% of savers are no longer paying any tax on their savings, largely due to the introduction of the Personal Saving Allowance, which has eradicated tax on the first £1,000 earnt from savings, for basic-rate taxpayers. Higher-rate taxpayers can also reap these rewards, however, they are entitled to a smaller tax-free allowance of £500.

This poses the question of whether ISAs still represent good value as a tax free savings vehicle, or whether savers might be better off placing their money in a high interest savings account. However, there is still value to be had in ISAs.

Saving into a Cash ISA is a good way to future proof your money. Bearing in mind that interest rates are currently at an all time low, and this rarely remains the case, as interest rates increase, so too will the amount of money you earn from your savings. Keeping your money in a Cash ISA will ensure that as your savings grow, and as interest rates start to climb, any interest you earn over the Personal Savings Allowance, remains tax free.

Is a Cash ISA Better Than a Savings Account?

This very much comes down to the sum of money you plan to save and which tax band you currently sit in. If you are a basic rate taxpayer, then you can earn up to £1,000 income from your savings completely tax free. If you are earning less than this amount in interest per annum then you may be best to keep your savings in a high interest savings account.

However, if you are earning over this amount from your savings, it would certainly represent better value to keep your savings in a Cash ISA in order to protect your interest from the taxman. Also it is worth remembering that the tax free element of a Cash ISA means that the normal savings rate on a Savings Account would have to be 82% higher for it to beat a Cash ISA.

For savers who are a higher rate taxpayer, a Cash ISA is even more likely to represent good value as your personal savings allowance is reduced to £500.

Are Fixed Rate Cash ISAs a Good Idea For a Higher Rate Taxpayer?

The personal allowance for a higher rate taxpayer is reduced to just £500 which means that for this bracket of savers, an ISA is even more valuable.

Can ISAs Go Down in Value?

A Fixed Rate Cash ISA can not go down in value and you are guaranteed a fixed rate of interest and to get back what you put in plus any interest you earn on your balance for the duration of the term of the fixed rate cash ISA. However, should you put your money in a Stocks and Shares ISA it is possible for it to go down in value in response to fluctuations in the marketplace.

Can I Deposit Money Into a Fixed Rate ISA?

Most providers will give you a set amount of time when you open your Fixed Rate ISA Account, with which to make your deposits and transfers before locking the account for the duration of the term. This means that once this period is over you won’t be able to make any changes to the account using deposits or withdrawals without incurring a penalty.

How Many ISAs Can I Pay Into?

You can only pay into one of each type of ISA in any one tax year. Each payment into each type of ISA will count towards your ISA allowance of £20,000. This means that you can make payments into one Cash ISA, (a Fixed Rate ISA would count as a Cash ISA), one Stocks and Shares ISA, one Help to Buy ISA, one Innovative Finance ISA and one Lifetime ISA in any one tax year.

What Happens If I Pay Into Two ISAs?

This is a common mistake made by savers but thankfully one that can be resolved. Your best course of action would be to contact HMRC on their ISA helpline 0300 200 3300 and explain what has happened and they will advise you as to the correct course of action. You should never try to correct this mistake yourself as you would risk losing your ISA allowance.

What is The ISA Allowance For 2020/21

The current ISA allowance for 2020/21 is £20,000 and this amount looks set to stay for the upcoming financial year of 2021/22.

Which is Best, ISA or Bonds?

A bond is a type of investment that comes in the form of a loan and can earn money in the form of interest. Like a Cash ISA, you are guaranteed to get back what you put in plus any interest earned.

When choosing between a Bond and an ISA you will need to answer the following questions:

  • How long can you leave your money untouched for?
  • What is your appetite for risk?
  • Which tax bracket do you currently sit in?

If you are confident that you won’t need access to your money for a set term, then you may want to consider a fixed term bond as these will often offer better rates than a Cash ISA. However, if you are looking for the best possible returns and can commit to not touching your cash for five years or more, then you may want to consider an Investment ISA as this will offer the best returns of all. Of course placing your money in a Stocks and Shares ISA comes with a degree of risk, however, they do historically provide better returns over time than either a Cash ISA or Bonds.

FAQs About Fixed Rate Cash ISAs

How safe are ISAs?

Most providers of ISAs are authorised and regulated by the Financial Conduct Authority, which assures customers that all dealings uphold certain ethical standards. The other entity which ensures the safety of your money is the Financial Services Compensation Scheme which, should your provider go bust, will compensate you up to the value of £85,000 on any money lost.

How many Fixed Rate ISA accounts can I have?

Whilst you can have more than one Fixed Rate ISA, the rules are that you can only open one Cash ISA in any financial year. Any ISAs that you have opened in previous years are irrelevant.

How much can I deposit into my Fixed Rate ISA?

The ISA allowance in the 2020/21 financial year is £20,000 and this will continue into 2021/22. However, if you have existing ISAs, any balance contained within there can be transferred into your Fixed Rate ISA without affecting your ISA allowance.

Can I transfer the balance of my Easy Access Cash ISAs into a 1 Year Fixed Rate Cash ISA?

Yes, any existing ISAs can be transferred into your 1 year Fixed Rate ISAs, as long as it is permitted by the provider you have selected.

How do I choose the term of my Fixed Rate ISA?

There are several things to consider here. You will notice that the longer the term, the higher the interest on a Fixed Rate ISA. However, the most important thing is that you are in a position to have your money locked away for the duration of the term as any early access will incur a hefty penalty.

The other thing to consider is whether the interest rate is likely to rise in the near future. Following COVID and Brexit, the interest rate as set by the Bank of England in the UK is at an all time low and locking yourself into a lengthy term on a Fixed Rate ISA could leave you unable to take advantage of an increase in the interest rate, should it rise. However, there is still talk of negative interest rates being introduced by the autumn of 2021, in which case, being locked into a Fixed Rate ISA would be an advantage.

The term you choose on your Fixed Rate ISA should depend on your circumstances, however, should you be comfortable having your money locked away for five years or more, you may want to consider a Stocks and Shares ISA instead as these usually offer better returns.

What happens to my ISA allowance if I haven’t used it by the end of the tax year?

With your ISA allowance it is a case of ‘use it’ or ‘lose it’. Once the financial year has ended, any unused allowance is lost and cannot be recovered. This is the case for all ISAs including a Fixed Rate Cash ISA.

Can I make a withdrawal from a Fixed Rate Cash ISA?

Yes, you can withdraw your money from Fixed Rate ISAs, however, you will incur a hefty penalty charge which could amount to some, or all, of your interest earnt should you withdraw before the end of the term of the ISA. If you think you will need access to your cash, then you may be better suited to an Easy Access ISA. While the AER may not be as competitive, an Easy Access Cash ISA gives you instant access to your funds without incurring a fee.

Can I split my ISA allowance between Fixed Rate Cash ISAs and Easy Access ISAs?

Yes, and sometimes this is a very sound strategy that allows you to take advantage of the higher rates often offered in Fixed Rate Cash ISAs and the flexibility that comes from an Easy Access ISA. However, you should still remain within the ISA allowance across all the ISA accounts you deposit into.

Should I pay off my mortgage before saving into fixed rate ISAs?

This depends on your unique circumstances, however, we would recommend that you check the interest rates on your mortgage, and if those are higher than what you would be earning within Cash ISAs, then you use your money to offset your mortgage first.

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