Find out how to maximise your tax free savings allowance with the best 4 year fixed rate ISA on the market.
4 year fixed rate cash ISA savings accounts are a great option if you do not need access to your funds for at least 48 months.
Generally the interest rates available on 4 year ISA accounts top those offered by fixed rate ISAs of 3 years and below.
As you compare 4 year cash ISA rates, take note that the ISA provider is committing to pay interest at the agreed rate for 48 months – better still, the interest you earn will be paid tax free.
When it comes to choosing an account you simply need to compare your options and apply for the 4 year fixed rate ISA that pays the highest rate of interest on the amount you have to invest.
Whichever account you choose at the end of the term the 4 year ISA rates will be dropped to a lower interest rate (as low as or even less than instant access cash ISAs rates) and your savings will stop being profitable unless you instruct the provider to transfer your ISA savings to a new home.
Alternatively, if you had planned to put the money to other use immediately after the 4 year term ends, then you would need only request a withdrawal.
Other than interest rate considerations (the higher the Annual Equivalent Rate-AER, the better), your choice of the best 4 year ISA will also be determined by the minimum deposit required by the ISA provider.
The minimum deposit required by the best 4 year fixed rate ISA accounts on the market vary between £1 and £5,340 so the amount you have to invest will have a significant bearing on which ISAs you’re able to open.
For the 2011/2012 tax year you can invest up to £5,430 of new money in a cash ISA. However many ISA providers will allow you to transfer in balances from previous years’ ISAs too so you can earn the attractive rate of interest on offer on a larger sum.
However, some providers offer attractive 4 year ISA rates but prohibit inward transfers from your existing cash ISAs. If you want to transfer in previous years’ allowances into the best 4 year cash ISA you can find you’ll need to check where providers stand on incoming transfers – you can do this using our 4 year cash ISA comparison.
There are a couple of other points that you need to consider before tying your money up in a 4 year ISA bond.
Firstly, the majority of fixed rate ISA providers will not allow you to access or draw on your money during the account term. This means you need to be sure that you won’t need the cash you invest for the next 4 years.
Some ISA providers will allow you to withdraw cash from a fixed rate ISA but will apply an interest penalty which could seriously harm your return. For a 4 year fixed rate ISA, interest penalties of around 180 days worth of interest are fairly standard.
You need to check a provider’s stance on early withdrawals before you invest your money so that you’re not caught out.
Secondly, no one can ever know with certainty where future interest rates will be. If the rates available on other accounts go up during the term of your 4 year fixed rate ISA then you would lose out as you would not be able to transfer your money to a more profitable home until the end of the account term.
However, if the interest rates available elsewhere decline during the term, opting for a 4 year fixed rate ISA would in retrospect be a prudent financial decision as you would be earning more than would otherwise possible.
This is something else you need to take into consideration when you’re considering whether a 4 year fixed ISA bond is the right account for you.
