What is an ISA
An ISA is an individual savings account that you can open with the majority of banks in the UK. ISAs are unique because they give you the opportunity to earn a certain amount of tax-free interest, set by the government each year.
There are a number of different types of ISAS such as
Cash ISAs or instant access ISAs: these ISAs allow you to deposit up to a certain amount and make as many withdrawals as you wish.
Fixed rate ISAs: these ISAs require you to lock up your capital for the duration of the fixed term.
Stocks and Shares ISAs: these allow you to use an ISA as a vehicle for stocks and shares, and can enable you to make some serious growth on your initially invested capital.
Lifetime ISAs: these can be used to save for a house or for retirement. If you open a lifetime ISA, the government will add a 25% bonus to your initially invested capital, up to a maximum of £1,000 per year.
Junior ISAs: these ISAs can be opened for anyone under the age of 18 and have a smaller tax-free interest ceiling
1 Year fixed rate ISAs
1 Year fixed rate ISAs are a popular type of ISA for those who are willing to tie up their capital for 12 months. Although not every bank in the UK will offer a 1 year fixed rate ISA, there are still a vast number of them available.
To explore your 1 year fixed rate ISA options review our table above and find the best available deals.
Common features of a 1 year fixed rate ISA
The features of a 1 year fixed rate ISA will change depending on the ISA provider. However, common features can be found amongst the majority of 1 year fixed rate ISAs on the market.
To qualify for any 1 year fixed rate ISA, you must be over the age of 18 and live in the United Kingdom.
If you are living outside the UK, you may still be able to open a 1 year fixed rate ISAs, providing you are a Crown servant (for example a part of the armed forces, a diplomat or overseas civil servant).
1 year fixed rate ISAs give you the opportunity to earn a certain amount of tax-free interest, set by the government each year. In 2020/21 the ISA allowance for tax-free interest is £20,000.
If you open multiple ISAs, then you should understand that your tax-free allowance is split between your ISAs .In addition, it is important to note that the allowance cannot be 'saved up' or carried over into the next tax year.
The tax-free limit is decided by the government and is likely to increase in the coming tax year.
Unlike cash and instant access ISAs, 1 year fixed rate ISAs typically do not allow you to withdraw any of your initially invested capital for the duration of the term.
Although some banks will allow you to access your capital at any point in their 1 year fixed rate ISA, this will usually come at a cost; they will levy an early withdrawal/closure charge. These charges can be significant, and depending on how long your capital has been in the 1 year fixed rate ISA, you may receive a substantially reduced amount of capital than you invested.
1 year fixed rate ISAs do not enable you to access your initially invested capital throughout the term, but as a trade-off they generally give you higher rates of interest than other ISAs. This means that you can enjoy higher rates of interest and potentially see your capital grow faster than in an instant access ISA.
The majority of 1 year fixed rate ISA providers will require a minimum deposit, which can be as little as £100 or as large as £2,000. It is important to check with the ISA provider before looking to open the 1 year fixed rate ISA.
Bear in mind that you only have to commit your capital for 1 year; therefore, even if the minimum deposit is large, the ISA may still be a good option.
Opening a 1 year fixed rate ISA with a large deposit may help you earn decent growth on your capital over the short term, especially with its ability to earn tax-free interest.
Cooling off period...
Some ISA providers allow some flexibility with how large your deposit is. For example you may miscalculate how much you can afford to lock up for a year, or you may realise that you will require your savings in the near future; there are some ISA providers that will allow you to amend your deposit within certain number of days.
The majority of ISA providers with a cooling off period will only allow you to change your mind within the first 14 days of opening the ISA. It is advisable to check with the ISA provider to see if they have a cooling off period and how long it is.
Who can open an ISA
It should be noted that not everyone can open a 1 year fixed rate ISA. The ability to open a 1 year fixed rate ISA is restricted to those living in the UK or over the age of 18.
Although some banks may offer 1 year fixed rate junior ISAs, they are not very common.
Who can contribute to an ISA
There are no such restrictions in terms of who can contribute to a 1 year fixed rate ISA.Any contributions to your ISA will be seen as a gift; therefore, parents, extended family members or even friends can add to your ISA to help your capital grow.
Financial Services Compensation Scheme protection
The Financial Services Compensation Scheme (FSCS) offers a certain amount of protection to capital in an ISA.
The extent of the FSCS's protection will depend heavily on how many ISAs you have and how much capital you have in them.
FSCS protection for 1 year fixed rate ISAs...
1 year fixed rate ISAs benefit from the protection of the FSCS, so long as the 1 year fixed rate ISA is with an authorised UK bank or building society.
This means that £85,000 per person is protected and if any authorised bank or building society collapses, the return of up to £85,000 is guaranteed.
It is important to understand that some banking brands are under the umbrella of the same banking authorisation. Therefore, if you have opened multiple ISAs with different banking brands, you should double check that they do not share the same banking authorisation.
If you have more than £85,000 in a 1 year fixed rate ISA in the same bank (or multiple banks under the same authorisation) it's advisable to move the excess to benefit from another bank's FSCS protection.
Things to look out for when choosing a 1 year fixed rate ISA
Finding the best 1 year fixed rate ISA account for you may take some time. You can review our ISA table above and compare which 1 year fixed rate ISA is best for you.
From our table, you can see that there are a vast number of options to choose from. When deciding which 1 year fixed rate ISA to open, you may want to review the following:
Minimum ISA deposits: some fixed rate ISA accounts require a minimum level of funding to get started. So you should consider how likely it is that you will need your capital in the near future, how much you can afford to lock up for the 1 year fixed term and if the minimum deposit level will take you over this year's tax-free ISA allowance.
Additional bonus rewards: The majority of banks will offer bonus rewards as a way to entice new customers to open a 1 year fixed rate ISA with them. It should be noted that there are usually terms and conditions that accompany the rewards; for example, the interest rate may drop drastically after the special bonus is paid. Therefore, you may want to consider switching to another ISA provider after the initial period ends.
How the interest is calculated: The way your interest is calculated and even paid may differ from provider to provider; some ISA providers pay interest monthly, while others do so quarterly or annually. In order to ensure the 1 year fixed rate ISA meets your requirements, check how the interest is calculated and the frequency of the interest payments.
Early closure/ withdrawal penalties: If you are unsure whether you will need to access your capital during the fixed term, check whether the ISA provider charges any early closure/withdrawal penalties; these penalties can be significant and are usually calculated on a number of days' worth of interest
If the ISA provider does charge fees for early closure or withdrawal, you may want to find a different ISA provider.