Easy Access ISA v Fixed Rate ISA

logie48

I'm struggling to understand the difference between the two, and can't seem to collate any information in order to work out whats best for me. Reason being is I want to take advantage of the better rates, but i'm also wary of the fact that i'm planning on taking out a mortgage in 1-2 years time. So I want to know more about the 2 year ISA's, incase I need money before the ISA period runs out.

I understand the concept of the easy access ISA. I've had one of these for the last 3 years, with seperate banks.

But can anyone explain how the fixed rate ISA works, especially the 2,3 and 4 year ones. Is your cash locked away with no access? How is interest paid? Yearly? After the fixed rate ends? How do the penalties apply? Only when you shut the account? Or when you dip into it (if possible)

Many thanks in advance.

badger09

logie48 wrote: »

I'm struggling to understand the difference between the two, and can't seem to collate any information in order to work out whats best for me. Reason being is I want to take advantage of the better rates, but i'm also wary of the fact that i'm planning on taking out a mortgage in 1-2 years time. So I want to know more about the 2 year ISA's, incase I need money before the ISA period runs out.

I understand the concept of the easy access ISA. I've had one of these for the last 3 years, with seperate banks.

But can anyone explain how the fixed rate ISA works, especially the 2,3 and 4 year ones. Is your cash locked away with no access? How is interest paid? Yearly? After the fixed rate ends? How do the penalties apply? Only when you shut the account? Or when you dip into it (if possible)

Many thanks in advance.

You would need to read the T&Cs of the particular ISA you were looking at. The basic idea is that fixed rate/fixed term accounts pay a better rate of interest in return for locking your money away.

Interest is usually credited annually. Penalties are usually expressed in terms of loss of xxxdays interest. Depending on the length of the fixed term and the date you want your money out, you could be charged more in penalties than you've earned in interest:( Most don't allow you to 'dip in', just close or transfer elsewhere - on paying the stated penalty of course.

It really isn't a good idea to lock your money away if there's a good chance you'll need access to it.

david78

Typically with fixed rate accounts the cash is "locked away" with no access. However, you can usually have access "in an emergency" (by closure/transfer out), but will lose some interest if you do so. Interest can be paid monthly (to the account or paid out) or annually just as with an easy access account.

logie48

Thanks for your replies guys.

So my understand from your posts are, when it mentions penalties for closure; This would be the only way to access the money, before the fixed period. But some may offer emergency access

logie48

Another question; What would you do if after the first year of a 2 year fixed rate ISA, another ISA was available at a better rate. How would you tackle that one?

david78

You would have to calculate whether the extra interest from the ISA with the better rate was more than or less than any exit penalty you would pay. It is likely it wouldn't be worth it, so you would miss out on the opportunity to get the better rate and leave your ISA where it is.

logie48

david78 wrote: »

You would have to calculate whether the extra interest from the ISA with the better rate was more than or less than any exit penalty you would pay. It is likely it wouldn't be worth it, so you would miss out on the opportunity to get the better rate and leave your ISA where it is.

I see. Another thing i'll also need to consider. Many thanks