Published: 11 October 2024
If you want to earn tax-free interest on your savings, a cash Individual Savings Account (ISA) might be right for you. Our guides to what an ISA is and how cash ISAs work are a good place to start if you want to get to grips with the world of individual savings accounts.
There are two main types of cash ISA interest rates: fixed rate and variable rate. Fixed rate cash ISAs make up the majority of what we offer, and here we explain what they are and how they work.
What is a fixed rate cash ISA?
Put simply, a fixed rate cash ISA is a cash ISA which offers a fixed rate (which means that it won't change) of interest for a set period, provided you meet the terms and conditions of the account. Fixed rate cash ISA terms typically last from one to five years.
You'll usually have some access restrictions when it comes to withdrawing funds. Cash ISAs are available to individual UK tax residents aged 18 or over.
How do fixed rate cash ISAs work?
Fixed rate cash ISAs have a guaranteed rate of interest that won't change during a fixed term. They usually have the same basic saving conditions that other cash ISAs do, too. When the fixed term ends and your account matures, you can then withdraw your money with the interest you’ve earned.
However, they are different from other similar savings options, like easy access savings accounts and fixed rate bonds.
What's the difference between a fixed rate and variable rate cash ISA?
A variable rate Cash ISA means that it can go up or down while you hold the account. However, with a fixed rate cash ISA you know exactly what you'll be getting back on your savings because the rate is fixed. However, if interest rates go up during the fixed term you won’t see an increase.
What's the difference between a fixed rate cash ISA and fixed rate savings bond?
Like a fixed rate ISA, fixed rate bonds pay a guaranteed rate of interest for the duration of the account. Where they differ is that fixed rate cash ISAs are tax-free, meaning that you won't be charged any tax on the interest earned on your savings. Fixed rate savings bonds aren't tax-free.
This doesn't necessarily mean that you'll pay tax on the interest that you earn in a fixed rate bond, though. Your Personal Savings Allowance (PSA), which is based on the income tax rate that you pay, means that you can earn as much as £1,000 of tax-free interest each year, depending on your PSA bracket.
How much can I put into a fixed rate cash ISA?
The ISA tax-free allowance (tax-free means that the interest is exempt from income tax) for the 2024/2025 tax year is £20,000. You can save up to £20,000 in one account or split the allowance across multiple accounts. This can be fixed or variable cash ISAs, stocks and shares ISA, innovative finance ISA or the Lifetime ISA.
Can I add money to a fixed rate cash ISA?
Fixed rate cash ISAs are suitable for lump sum deposits. You can only make deposits up until an agreed date, which is usually the start date of the agreed fixed term, so you won't be able to keep topping up your ISA as it sits there.
Can I make withdrawals from a fixed rate cash ISA?
Fixed rate ISAs aren't designed for access, and the intention when opening one should be that you don't make any withdrawals before the fixed term ends.
With our Fixed rate cash ISAs, if you do need to make a withdrawal, you can, but there will be a charge.
A withdrawal from a Leeds Building Society fixed rate ISA carries a charge that's the same as a loss of 'x' days of interest. The number of days’ interest depends on the length of the fixed term and usually goes up as the term of the ISA increases:
- Our 1 year fixed rate ISA has a charge equivalent to 90 days interest on the amount withdrawn.
- Our 2 year fixed rate ISA has a charge equivalent to 180 days interest on the amount withdrawn.
- Our 3 year fixed rate ISA has a charge equivalent to 240 days interest on the amount withdrawn.
This means that you could end up with less than what you put in.
If you're looking for access to your ISA, a variable rate option may be worth considering.
Can I transfer a fixed rate cash ISA before maturity?
You can transfer all or part of the savings in a Cash ISA from one provider to another at any time. It can be to a different type of ISA or the same type. Transfers can be made from savings made in the current tax year or in previous years.
Is my money safe in a fixed rate cash ISA?
Fixed rate ISAs are covered by the Financial Services Compensation Scheme (FSCS), which protects up to £85,000 of your savings per financial institution.
Ready to open a fixed rate cash ISA? We might be able to help...
If you're looking for a place to grow your savings tax-free and like the thought of a fixed rate of interest, one of our fixed rate cash ISAs could be a good option.
Browse our full range of cash ISAs or take a look at our complete savings range today. If you'd like to read more guides like this one, take a look at the rest of the articles on our Home and Money section.
This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. We recommend that you seek independent legal advice and/or financial advice if you have any questions or queries.
