What is a Fixed Rate Cash ISA?

The fixed rate cash ISA is a specific kind of individual savings account, or ISA, that is offered to residents of the United Kingdom. In the U.K., an ISA helps an account holder to save cash or assets from being taxed in a specific tax year. Citizens set up ISAs for depositing tax exempt savings that earn a fixed rate of interest, thereby accumulating more money over time.

A cash ISA is one that consists of cash savings. There are also several other types of ISAs that hold stocks and equities of different risk ratings, or in different sectors. A mixed ISA can hold both cash and stock.

The account holder of a fixed rate cash ISA simply contributes money during each tax year, and gets the returned rate of interest, untaxed. Taxes may apply at a future time, and penalties may also apply if an individual account holder takes out money before the agreed time period has elapsed. The key distinguishing factor, however, is the interest rate remains stable.

For those who are considering an ISA, a fixed rate cash ISA is an alternative to an adjustable rate ISA. In an adjustable rate ISA, the returned interest rate can vary along with changes to the Bank of England prime interest rate. Other changes can also apply according to industry standards. On the other hand, a fixed rate cash ISA offers the account holder the ability to secure a specific interest rate for the given time period for which the ISA is created.

There are specific “maturity periods” for fixed rate cash ISAs, where the interest rate is set in stone. U.K. savers can choose one year fixed rate cash ISAs, two year fixed rate cash ISAs, or somewhat longer saving terms. Each kind of cash ISA has its own benefits and drawbacks that attract those who have saved up capital over time.

Other countries have their own methods of incentivizing savings for individuals and families. Many industrialized nations take a similar approach to savings, whether it is encouraging built up capital in households, or promoting the use of a national stock exchange or other market for single investors to create their own wealth. Each nation also has its own specific policy on the taxation of savings and other aspects of its financial environment.