18 month fixed rate cash ISAs

18-month fixed rate cash ISAs explained

An 18-month cash ISA works in the same way as any other fixed ISA as it pays a fixed rate of interest for the specified term. This interest is exempt from tax.

You can deposit a lump sum into the account and, in return for receiving a guaranteed rate, you typically won’t be able to withdraw from your savings (or transfer to a different ISA) during the 18-month period without incurring some form of penalty.

Depending on the provider, you may only be able to make one deposit when you open the account, but others may allow further additions for a limited period.

Bear in mind that you can only deposit a maximum of £20,000 across one or more cash ISAs in a single tax-year.

At the end of the 18-month term, the provider will typically move your money into a standard variable ISA unless you request otherwise.

Should I consider fixing for a longer term?

It’s up to you to decide whether an 18-month ISA is right for you or whether you should fix for a longer term.

18-month ISAs may be appealing if you want to secure a guaranteed rate but you’re not comfortable locking away your money for an extended period.

However, if you have enough savings in an easy access account that can act as a financial cushion, for example, and you have a sum of money that you’re confident you won’t need, it may be worth considering a longer-term fixed ISA.

A longer-term ISA will pay a guaranteed rate of interest for a longer period, which could be appealing if savings rates drop.

But, on the other hand, putting your money into a long-term ISA could mean you miss out on higher-paying accounts if interest rates rise.

Alternatives to 18-month ISAs

Instead of an 18-month ISA, you may want to consider a one-year ISA or two-year ISA, which are more common products. As a result, you’re likely to have more accounts to choose from and may be able to secure a more competitive rate than if you only looked at 18-month ISAs.

If you want a fixed ISA with a longer term, you could also consider a three- or five-year fixed ISA.

Alternatively, if you want the option to dip into your savings, easy access ISAs or notice ISAs could be suitable options.

You may also want to look at standard savings accounts, such as an 18-month bond, instead of ISAs as you may find these pay higher rates.

However, it’s important to bear in mind that you will need to pay tax on any interest you earn from your savings if you earn more than your Personal Savings Allowance (PSA). By contrast, you don’t need to pay any tax on interest you earn on ISAs.