Are Fixed Rate ISAs a good idea?
If you’ve been comparing savings accounts, you’ve probably come across Fixed Rate ISAs. Fixed Rate ISAs are a great way to get a guaranteed interest rate, but are they right for you or are there better ways to grow your savings?
In this guide
- What is a fixed rate ISA?
- Are fixed rate ISAs a good idea?
- When is a fixed rate ISA a good idea?
- Saving for a house? A Lifetime ISA could be a better fit
- Are fixed rate ISAs better than regular savings accounts?
- What happens when the fixed term ends?
- How much can someone put into a Fixed Rate ISA each tax year?
- What if interest rates rise after opening a Fixed Rate ISA?
Withdrawing funds before maturity will incur a charge. Partial withdrawals from a Fixed Rate ISA are restricted. Tax treatment depends on individual circumstances and may be subject to change in the future
Key Takeaways
- Guaranteed Returns: Fixed Rate ISAs provide a set interest rate for a specific term, usually between 1 and 5 years.
- Tax Efficiency: All interest earned is tax-free and does not count toward the Personal Savings Allowance.
- Limited Access: Funds typically cannot be withdrawn during the term without facing a significant interest penalty.
- Rate Protection: These accounts protect savers if market interest rates fall, but savers won't benefit if rates rise.
- LISA Alternative: If saving for a first home, a Lifetime ISA (LISA) may be better due to the 25% government bonus.
What is a fixed rate ISA?
A Fixed Rate ISA is a type of Cash ISA that pays a guaranteed rate of interest for a set period, usually between 1 and 5 years. While your money is in the account, the rate won’t change, and your interest is completely tax-free (thanks to the ISA wrapper).
However, in return for the fixed interest rate you’ll agree not to make any withdrawals until the end of the term, or you pay a penalty for withdrawing before the end of the term. Many providers will restrict deposits too, letting you deposit a lump sum when you first open the ISA before locking your account until the term is complete.
Learn more: Do you pay tax on savings interest?
Earn a fixed 4.14% on your savings
Lock your savings away for 12-months with our Fixed Rate Cash ISA and earn 4.14% AER (fixed). Add more funds to lock in for 12 months from the date they're added, at the rate available at the time.
If you withdraw from the Cash ISA - Fixed Rate before maturity, you will incur a charge equal to 90 days of interest on the amount taken out. This means you may get back less than you put in. You cannot withdraw part of an immature Fixed-Rate ISA deposit; if you withdraw, you must withdraw the full balance of each deposit you select.
Are fixed rate ISAs a good idea?
Fixed Rate ISAs can be a good idea if you want a guaranteed interest rate who are comfortable locking away your money for a number of years. The main advantage is the higher interest rates they often offer compared to easy-access ISAs, making them ideal for long-term saving.
However, they come with the drawback of limited flexibility, as early withdrawals usually incur penalties. Plus, if interest rates rise, your rate will stay the same, so savers might miss out on a better interest rate. But the reverse could happen, where interest rates drop while you’re benefitting from a higher locked-in rate.
Pros and cons of Fixed Rate ISAs
Pros
Tax-free interest: No tax on earnings even if the Personal Savings Allowance is exceeded.
Protection from falling rates: Your rate is locked in even if market rates drop.
Saving discipline: Locking money away prevents "dipping in" for non-essential purchases.
Cons
Limited access: No withdrawals during the term without penalties or account closure.
Penalty for early closure: Accessing money early usually results in loss of interest.
Fixed rates: You won't benefit if interest rates rise during your term.
When is a fixed rate ISA a good idea?
Whether a Fixed Rate ISA is right for you depends on whether you’re happy to lock away your money for at least a year, if not longer, and if you think interest rates may drop and you want to lock in a rate. Unlike variable-rate accounts, your interest rate is fixed, so you know exactly how much you’ll earn, no matter what happens with inflation or the Bank of England’s base rate. If you’re saving for something specific (like a house deposit or wedding in a few years), a Fixed Rate ISA can help you set that money aside and avoid the temptation to dip in.
As an ISA, any interest you earn from a Fixed Rate ISA will also be tax-free, which can be particularly useful if you’ve used up your Personal Savings Allowance, you’re a higher or additional rate taxpayer, or you want to protect your savings from future tax changes.
Learn more: How many Fixed Rate ISAs can I have?
Tax treatment depends on individual circumstances and may be subject to change in the future
Saving for a house? A Lifetime ISA could be a better fit
If you’re saving for your first home and put all your savings in a Fixed Rate ISA, you could miss out on up to £1,000 a year from the government! That’s because first-time buyers can save up to £4,000 a year in a Lifetime ISA and get a 25% bonus towards an eligible property worth up to £450,000.
So, max out your Lifetime ISA three years in a row and you’ll get a £3,000 bonus from the government, bringing your total deposit to £15,000! And that’s without even taking interest into account. With a Tembo Cash Lifetime ISA, you’ll also earn our market-leading rate of 3.8% AER (variable), boosting your deposit even further.
Learn more: Should I get an ISA?
Ineligible Lifetime ISA withdrawals may return less than paid in. LISAs must be open for at least 12 months before being used to purchase a property.
Are fixed rate ISAs better than regular savings accounts?
They can be better than a regular savings account, especially if you’ve used your Personal Savings Allowance or want a tax-free way to lock in a strong rate. Which account is best will depend on personal circumstances, such as whether savings can be locked away for a number of years without needing access to them.
You might also like: Best savings accounts in the UK
What happens when the fixed term ends?
When a Fixed Rate ISA reaches the end of its term it “matures”. The provider usually writes 2–4 weeks before the maturity date with clear options:
- Move the money into another ISA to keep its tax-free status.
- Withdraw the cash to a current or savings account.
- Open a new Fixed Rate ISA and lock in a fresh rate.
- Take no action – most providers will park the funds in an easy-access Cash ISA that pays a variable rate.
If no action is taken the balance remains tax-free, but the new rate is often lower. After maturity, you can move or withdraw funds at any time without paying an early-exit penalty.
How much can someone put into a Fixed Rate ISA each tax year?
For the 2025/26 tax year the annual ISA allowance is £20,000. You can put all, or part, of that allowance into a Fixed Rate ISA. Money transferred from ISAs opened in previous years does not count toward the £20,000 limit.
Many Fixed Rate ISAs only accept new deposits for a short period after opening. Tembo’s 12-month Fixed Rate Cash ISA lets you add extra funds at any time during the term, and each new deposit earns the fixed rate available on the day it is added.
What if interest rates rise after opening a Fixed Rate ISA?
If interest rates go up and your savings are in a Fixed Rate ISA your rate won’t change. That’s both the benefit and the drawback of fixing. If rates rise, you might earn less than you could have elsewhere. But if they fall, you’ll be glad you're locked in!
Ready to lock in a fixed rate?
Protect your savings from declining interest rates by locking in 4.14% AER (fixed) for 12-months with our Fixed Rate Cash ISA
