Newspaper article The Evening Standard (London, England)

To Fix or Not to Fix: That ISA the Question

Newspaper article The Evening Standard (London, England)

To Fix or Not to Fix: That ISA the Question

Article excerpt

Byline: Emma Lunn

ISA savers have a dilemma when it comes to the best type of account for their money: fixed or variable? In general, fixed rates pay more and the longer the fix, the better the rate. For example, the best variable rate ISA at the moment is the AA's Internet Access ISA (issue 3) paying 3.5%. The rate is guaranteed for a year, in effect making it a one-year fix with instant access.

But if you're happy to commit your money to be tied up for five years you could get a rate of 4.5% with Halifax's ISA Saver Fixed. A four-year version pays 4.35% and three years 4.25%. If you want to commit it for less time, Cheshire Building Society has a twoyear fixed ISA at 4%.

The advantage of opting for a fixedrate ISA (also known as an ISA bond) is that the rate will stay the same for the length of the fix, giving savers certainty. But fixing is a double-edged sword as savers could miss out on any higher-rate deals which later become available. Another downside of fixed rates is that in most cases you won't be able to get access to your money penalty-free. So, fixed-rate deals are really only an option if you have other savings in case of emergency.

Variable-rate ISAs, on the other hand, generally allow you instant access to your money but since most come with an introductory bonus, the rate of interest you receive will later drop considerably, usually after one year. That deal at the top of the bestbuy table, the AA's Internet Access ISA (Issue 3), for example, includes a 12-month bonus of 3%, meaning the rate will drop from 3.5% to a paltry 0.5% in a year's time.

Louise Holmes, spokesman for comparison site Moneyfacts, says: "Of the top five variable ISA rates, four include introductory bonuses equating to a substantial portion of the overall rate. It would be wise for savers opting for these types of accounts to make a note of when their bonus period is due to expire. This should allow enough time to review options, transfer funds and ultimately avoid a measly return."

Historically, fixed-rate ISAs have been a better option than variable rates. …

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