Fixed or variable rate - which is best?

lizzyshep

Hello, I hope someone can help me with this, and with some decisions me and my husband are trying to make.

I understand that a fixed rate ISA guarantees a certain interest rate over a period of time, and that withdrawals are not allowed without closing the ISA and paying an interest penalty. With a variable rate, I know that the rate usually drops significantly at the end of the financial year, hence the need to transfer to a new ISA, but do rates ever drop during the year?

My husband has around £12k in his 2011/12 ISA and we are thinking of transferring it to the Santander 2 year fixed rate at 4%, as we are unlikely to need the money during that time. The main problem I can foresee is that interest rates might go up over the next 2 years (although from what I have read it doesn't seem that likely). Does anyone have any views on this?

Additionally we have about £7k of new money to put into an ISA. We don't want to lock this money away because we have a baby due very soon and we may need to dip into our savings at some point.

I was planning to open an instant access variable rate ISA in my name (best I can find is 3.5%). From what I have read on here, am I right in thinking that my husband can do the same? Even if he does open the Santander 2 year fixed ISA, providing he only transfers his old ISA into it and doesn't pay in any new money for 2012/13?

I know you can only subscribe to one cash ISA each year but I don't quite understand if transferring an old ISA counts as subscribing to one.

Any help is much appreciated, thank you

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psychic_teabag

Yes, you can both subscribe to a new ISA this year. Transfers do not count as subscriptions.

lizzyshep

Thanks, that's helpful Think we will probably both go for the AA easy access with a variable rate of 3.5%, this includes a 3% bonus so even if rates do drop it won't be by that much.