Banks and other ISA providers generally offer higher interest rates on their 2 year fixed ISA savings accounts than are available on 1 year and instant access cash ISAs. This is to compensate for the fact that you’re forgoing access to your money during that time.
When you compare 2 year fixed rate ISAs you should focus on the rate of interest available on the deposit balance you have.
Remember that when you opt for a fixed rate ISA, you want 2 year ISA rates that are likely to remain competitive relative to the other options available throughout the term of the ISA so choosing the best 2 year fixed rate ISA account you can is a must.
Of course, it is impossible for anyone to accurately predict what the market rate would be after 6 months. However, going with the provider offering the best 2 year ISA rates means your opportunity cost will not be as high as what you would have incurred if you went for a lower interest rate provider.
To pick out the best 2 year ISA deals, establish what the minimum deposit requirement for each account is. The amount you have available to save will determine which deposit limit will be most practical for you.
Many 2 year ISA bonds require a £ 500 deposit as a minimum but you will find a few exceptions that fall on either side of that figure.
You also need to check whether the advertised rate of interest paid on the account applies to all balances, or only to balances in excess of a certain amount. It’s important that you choose an account that will pay a competitive rate of interest on the amount that you have to save.
In the case that you already have one or more cash ISAs and would want to transfer them to your new account, you need the best 2 year fixed rate ISA accounts that allow incoming transfers.
You should also check whether the account permits withdrawals at all during the account term and if so the extent of the withdrawal penalty – it is likely to be around 90 days or 180 days worth of interest.
As such you should only open a 2 year fixed term ISA if you are sure you can commit to investing your money for the duration of the term. If there’s any chance that unexpected circumstances may push you to early withdrawal then consider a shorter term account or opt for an account that allows early closure subject to the smallest penalty possible.
Do not forget to transfer the account balance to a new ISA at the end of the 2 years. If you do not, the cash continues to earn interest but at a significantly lower rate.