An introduction to fixed rate cash ISAs

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.

Generally, the interest rate of a fixed rate cash ISA is higher than what you might find with an instant or easy access savings account. You'll usually have some access restrictions when it comes to withdrawing funds.

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 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 fixed rate cash ISA pays a fixed rate of interest, meaning the interest rate won't change during the fixed term if you comply with the account's terms and conditions. A variable rate ISA pays a variable rate of interest, meaning that it can go up or down while you hold the account. This means with a fixed rate cash ISA you know exactly what you'll be getting back on your investment and won't need to worry about potential rate changes.

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 (as long as you're within your ISA allowance). 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 tax rate that you pay, means that you can earn as much as £1,000 of tax-free interest each year in any type of account, depending on your PSA bracket.

How much can I put into a fixed rate cash ISA?

Fixed rate cash ISAs carry the same ISA tax-free allowance* as any other cash ISA - for the 2024/2025 tax year this allowance is £20,000 per year. That means that you can earn tax-free* interest on up to £20,000 of savings annually. You can put more than £20,000 in per year but any amount over your allowance will be subject to tax. However, any interest on that surplus could be protected by your PSA, if you have one.

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. Please check the terms and conditions of any ISA you intend to open to see if you can make withdrawals.

With our Fixed rate cash ISAs, if you do need to make a withdrawal, you can, but there will be penalties.

A withdrawal from a Leeds Building Society fixed rate ISAs tends to carry a loss of 'x' days of interest. This figure usually goes up with the duration of the ISA. For example, our 1 year, 2 year and 3 year fixed rate cash ISAs carry a loss of interest penalty of 60 days, 150 days and 240 days, respectively.

If you're looking for more access from your ISA, you'll likely have to go for a variable rate option.

Can I transfer a fixed rate cash ISA before maturity?

The same ISA transfer rules apply to fixed rate cash ISAs as any other. As per gov.uk guidance, you can transfer your ISA to another ISA account and from one provider to another at any time, and this won't affect your ISA allowance, but it could be subject to an interest penalty.

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.

When it comes to interest rates changing, there's not much to worry about with a fixed rate option. Your interest rate won't budge and your final returns can be calculated from the day you choose an account.

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 not encounter any hidden surprises along the way, 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 Knowledge Base.

This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide. We recommend that you seek independent legal advice and/or financial advice if you have any questions or queries.

*Tax-free means that interest payable is exempt from income tax.

Cash ISAs are available to individuals aged 18 or over who are resident in the UK for tax purposes.