Difference between Fixed Rate ISA and Variable Rate ISA?

maxo_4

Hello,

Sorry for this simple question, but I hope someone can shed some light on it for me...

I've noticed often the same banks have both Fixed Rate ISAs and Variable Rate ISAs. Yet the Fixed Rate ISAs always have a higher rate of interest. I was therefore wondering what the catch was in getting a Fixed Rate ISA? Surely if there was no catch, everyone would go for the Fixed Rate ISA and avoid the Variable Rate ISA?

Also, what is the major difference between an ISA account with a Variable Rate and with a Fixed Rate? I thought that you were supposed to get the interest that was advertised, so why would only a 'fixed rate' ISA supposedly guarantee this interest? Or am I getting mixed up?

Thanks for any info/advice given.

bristolleedsfan

maxo wrote: »

I've noticed often the same banks have both Fixed Rate ISAs and Variable Rate ISAs. Yet the Fixed Rate ISAs always have a higher rate of interest. I was therefore wondering what the catch was in getting a Fixed Rate ISA? Surely if there was no catch, everyone would go for the Fixed Rate ISA and avoid the Variable Rate ISA?

Also, what is the major difference between an ISA account with a Variable Rate and with a Fixed Rate? I thought that you were supposed to get the interest that was advertised, so why would only a 'fixed rate' ISA supposedly guarantee this interest? Or am I getting mixed up?

Thanks for any info/advice given.

Fixed rates arent always higher than variable rates. ( they tend to be atm, due to fact that banks/building societies need the money and want it on a guaranteed zero transactional basis)

When base rates are tipped to reduce its prudent to fix as long as the funds arent required during the fixed period.

Some people dont realise that the variavle rates will reduce hence y they take out a variable rate ISA or they may want access to their money.

Only guarantee with variable rates is any short term bonuses attached to them.

Baldur

In addition to bristolleedsfan's post, the other side of the coin is that variable rates *can* also increase, in line with any increases in the BOE base rate, so are useful in times when rates are predicted to rise (not very likely at the moment, I suspect).

With a fixed rate ISA of £3,600 @ 6.5% you know that it will be worth approximately £3,834 at the end of a 1 year period. There is no such certainty with a variable rate ISA - one which I held last year had two 0.25% reductions in quick succession, so it was quickly transferred into a fixed rate product from a different provider.

kingkano

The catch is that generally during the time that the rate is fixed, you also can't get your money (at all!) or there is a heavy penalty for doing so. If you don't need access to the money then by all means fixed rates are great right now.

If its your only savings and you might need to access it in an emergency then variable rate will have to do.