Cash ISA Interest Rates
The interest rates of a cash ISA determine the amount of interest that can be gained from the ISA's deposit. An interest rate is a percentage multiplier under which a gain is made on a certain amount of deposit. Cash ISA interest rates are either variable or fixed and that is dependent on the type of account.
Variable interest rates
In variable interest rates, the rate is not pre-determined and does not remain fixed throughout a set term. Usually, the bank or credit institution depending on certain factors such as the Bank of England Base Rate , determines the rate. The rate can therefore either be high or low at any given time. ISAs that have variable interest rates often include easy access and flexible ISAs.
Fixed interest rates
The exact opposite of variable interest rates, fixed interest rates are pre-determined and do not change over time. Regardless of circumstances in the wider economy or other scenarios that could affect interest on a deposit, the rate remains at it set standard. ISAs with fixed interest rates include regular savings and fixed rate ISAs. Fixed rate cash isas can vary in term length with typical options ranging from 1 to 5 years.
Benefits of variable interest rate accounts over fixed interest rate accounts
Variable interest rate accounts allow for much greater flexibility in terms of deposit and withdrawal. An individual can usually make as many deposits as possible (see the ISA provider terms and conditions) up until the amount becomes equal to that set as the allowance limit. There is also a greater flexibility in withdrawal with little or no penalties or even a set limit on withdrawal. Withdrawals can also be made without meeting any requirements or conditions on the account, unlike fixed interest rate accounts where an individual must wait until the account matures. Always check the small print before you commit to a particular isa product.
Benefits of fixed interest rate accounts over variable interest rate accounts
You know where you stand with a fixed rate isa. Depending on whether the account is a regular savings or fixed rate, the individual gets to deposit a set amount of money at set intervals or a sum of money at once. With fixed interest rates you can usually get a better deal than on a variable interest rate basis. The downside is your money is locked away for a fixed term.
Always ensure that you check with the bank or credit institution their terms and conditions before signing up for an account. Similarly, check whether there are any conditions in transferring to avoid future inconvenience when move your account in future.