Instant Access ISA Interest Rates
The interest rates of an Instant Access 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. ISA interest rates are either variable or fixed and that is dependent on the type of account.
Typically, Instant Access ISAs offer lower interest rates than other types of ISA or savings account. This is because you have flexible access to your account and so exchange this freedom for the higher rates more restrictive accounts offer.
Choosing an Instant Access ISA
You can only open up to one Cash ISA in each tax year. Transferring accounts is usually possible and advisable in order to get the best rate of interest.
It is very important to try and find an ISA product that best suits the way you wish to save, you may therefore want to considering things such as the minimum required opening balance for different accounts and whether you feel an instant access or fixed-rate ISA would be better for you.
Here are the differences between the two:
Instant Access Cash ISAs: Usually allow unlimited, free withdrawals from the account and deposits up to your maximum ISA allowance. This means savers can access their money relatively easy should they decide to use it for other things over the terms of the ISA. These types of account usually offer a variable rate of interest. They also usually offer a small minimum deposit, often £1. This allows anyone to begin savings.
Fixed Rate Cash ISAs: Typically require a saver to lock their money into the account for a predefined period of time. During this period of time savers have very restricted access to the money within the account, some accounts may allow early withdrawals however these types of account tend to impose a penalty, based up a set number of days worth of interest for doing so. In return for locking their cash into the account savers receive a fixed rate of interest, meaning it’s possible to calculate exactly how much they stand earn in interest from the ISA over its course. Fixed-rate ISAs tend be offered on a term of: 1, 2, 3 or 5 years.
As identified, Instant Access ISAs offer a lower rate of interest but you have full freedom to access your money at any time.
Is a Variable or Fixed Rate of Interest right for me?
Variable interest rates
A variable interest 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, will determine the rate. Interest can therefore either be high or low at any given time
Most instant access ISAs offer variable interest due to the flexible nature of the account. Users of these accounts should be prepared to switch accounts in order to make sure they’re continually getting the best deal possible.
Fixed interest rates
A fixed rate of interest is 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 a Variable Interest Rate Account
Accounts with variable interest rates allow for much greater flexibility in terms of deposit and withdrawal. An individual can usually make as many deposits up until the amount becomes equal to that set as the annual 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.
This means that Instant Access ISAs are fully flexible.