Your complete guide to fixed-rate ISAs

Looking for a guaranteed savings rate with the tax-free interest earnings of an ISA? Fixed-rate ISAs offer savers reliable interest returns while keeping their money safe and locked away for a set period. Here’s everything you need to know about fixed-rate ISAs, including who they are best suited for, their advantages and drawbacks, and how they compare to other ISA products.

ISA stands for Individual Savings Account. It is a specific type of savings account in which you won’t pay income tax on interest earned up to a certain amount per year. For the tax year 2024/25, the ISA allowance is £20,000.

A fixed-rate offers a guaranteed amount of interest for a set period of time. You can view your money as being locked away securely in a safe, and when you access this at the end of the term, you’ll know exactly what you’ll be getting.

A fixed-rate ISA can offer peace of mind and security, as there isn’t the potential for your rate to change during the term your money is locked away for.

A fixed-rate ISA offers a set interest rate that is locked in for a set period. Common terms for fixed-rate ISAs are between one and five years, though it can be possible to find fixed-rate ISAs that extend to seven years. 

By accepting the terms of a fixed-rate ISA, you agree to keep your money within that account for this set period of time. In return, the ISA provider will pay the agreed interest rate when your account matures. From then, you’ll be free to reinvest your money elsewhere.

It’s not usually possible to access the money in your fixed-rate ISA before your term is up, but if a provider allows this, you’ll likely have a penalty charge and lose some of the interest accrued on your account. 

An ISA provider will decide the interest rate they would like to offer, with higher rates typically available when you invest your money with them for longer. The amount of interest you will earn will be calculated from the amount you deposit into your ISA and the length of time you’ll leave this in the account. ISA providers can choose to pay your interest in different ways, with some opting to pay yearly or monthly, this will be explained as part of your ISA terms.

The amount of interest that your ISA provider will pay is guaranteed, so this is something that you don’t have to worry about changing once you have opened your ISA. 

Fixed-rate ISAs are a good option for people who want a stable place to keep their money that offers reliable returns with tax-free interest. They are a useful way to earn guaranteed interest if you know you won’t need immediate access to your money – and that committing to the term of the ISA won’t be a problem for you. If you’re consistently saving for a large goal or one further in the future, a fixed-rate ISA combines security with additional rewards for keeping your money stashed away.

Fixed-rate ISAs are less suited for people who need to access their savings at different times, don’t know when they will need their money, or can’t commit to the length of these ISA accounts. 

A fixed-rate ISA is a low-risk option for your savings, as your money is covered by the FSCS up to £85,000 and offers reliable returns. Though locking away your money in an ISA for longer periods of time is one way to earn higher interest rates, for those with higher risk tolerance and looking for higher rewards, you could consider a stocks and shares ISA.  

At OakNorth, we offer fixed-rate ISAs with different term lengths. You can open a fixed-rate ISA that will lock your savings away from only 12 months up to 36 months, and you’ll receive higher interest rates the longer you commit to leaving your savings with us.  

12 months – Oaknorth’s shortest-term, fixed-rate ISA

Locking your money away for one year is great for savings goals that are coming up soon, but you still want to remove the temptation of dipping into them. This could be for your next car purchase or some upcoming home renovations.

24 months – Oaknorth’s medium-term, fixed-rate ISA

A mid-term savings account, leaving your money for two years untouched can be a great option for a house deposit or a bigger splurge holiday. 

36 months – Oaknorth’s longest-term, fixed-rate ISA 

Our longest-term fixed-rate ISA, locking your cash away for three years is better suited to larger purchases that you know you will not be making for a while, like your next property purchase or retirement savings.

Our ISAs offer tax-free earnings, clear transparent returns and accounts that can be opened with low deposits from as little as £1. 

Fixed-rate ISAs can be used for lots of savings goals, but since they are set away for a period of time, they are more often used for longer-term ambitions where you won’t need to access the money during the term of the account.

Big plans such as buying a house, a once-in-a-lifetime holiday or an upgrade to a family car are higher-ticket items that you can plan ahead for, and that can benefit from having an amount of savings set aside from them that is not able to be touched. The fixed rate and the fixed term of these ISAs can help you plan how much your savings will be worth in the future. The features of these types of ISAs make it easier to stay on track with your plans. 

Compared to other savings accounts, the greatest advantages of fixed-rate ISAs are their stability and accountability for:

1. Predictable returns: You know exactly how much interest you’ll earn during the fixed term. 
2. Tax-free interest: You don’t have to pay tax on the interest you earn, making your savings grow faster. 
3. Protects your savings: Sometimes your savings need saving from yourself. If you know that you are likely to dip into an easy access account or would spend your interest if it were paid to your monthly, having your money locked away can help you avoid spending it on impulse purchases.

Choosing an ISA that you won’t be able to access early with a guaranteed interest payout can be the best savings plan for some savers. If you need the reassurance that your money is out of sight and safely out of mind, as well as getting the benefit of a set amount of interest that will be paid at maturity, then this is a very helpful tool.

The strict nature of fixed-rate ISAs that some people view as advantages can also be a drawback for others. 

1. Locked in interest rates that won’t rise — while you won’t be subject to interest rates that could drop during the time you have your money saved in a fixed-rate ISA, this also means that you won’t benefit from any increases in interest rates if providers are raising them across the board. 
2. Lack of access — these types of ISAs require a time commitment for your savings to be locked away, with penalties or difficult withdrawal processes to access your money again if your circumstances change. This is why you need to be certain that the rules of these ISA accounts will work for you. 

A cash ISA is the most basic type of ISA that offers tax-free interest savings and operates similarly to other savings accounts. They are more flexible but are still subject to the maximum tax-free savings allowance each year, which is £20,000 for 2024/25. Interest rates on cash ISAs can be variable, and they can have fewer restrictions, such as the need to lock your savings away for a set time. Many cash ISAs allow you to add and withdraw money up to your tax-free limit freely.

A fixed-rate ISA has more guarantees: you’ll know what interest rate you’ll be earning and how long your money is locked away. So deciding whether flexibility or guaranteed returns are more important for you can make it easier for savers to choose between these two types of ISA. 

Most fixed-rate ISAs offer little to no flexibility in accessing your money before the term of your ISA is over. If you can access your money, there will often be a penalty, such as losing your fixed interest rate or a lengthy withdrawal process to still access your cash. With the impact this can have on the value of your savings, think carefully if withdrawing early is really worth it for you. 

If you decide to take your money out early from an OakNorth fixed-rate ISA, you’ll be charged a penalty fee on the amount withdrawn – equivalent to an interest deduction of 90 days for a 12-month term, 180 days for a 24-month term and 270 days for a 36-month term.

A fixed-rate ISA can be a good choice if you want a predictable return and don’t need to access your money for a set period of time. However, a variable-rate ISA might be better if you want more flexibility and the potential for higher returns if interest rates rise, though these can also go down. When choosing the right ISA, it’s important to weigh the pros and cons of each type of ISA and your financial goals. 

Like an OakNorth Fixed Term savings account, a Fixed Rate Cash ISA requires you to lock your savings away for an agreed time. However, with a Fixed Rate Cash ISA, you can withdraw money at any point if you need to. 

You should keep this in mind when choosing this option, as you’ll want to make sure you have a savings account that gives you the flexibility you need. Once you’ve chosen the right Fixed Rate ISA for you, either apply online or download the OakNorth app to open your new account.