Best 2 year fixed rate cash ISAs

What is a two-year fixed rate cash ISA?

A two-year fixed rate ISA is simply a type of Individual Savings Account (ISA) that pays a guaranteed rate of interest for two years.

In return for a fixed interest rate, you won’t be able to withdraw your money during the two-year term without some form of penalty charge.

As with all ISAs, the interest you earn on a two-year ISA is exempt from tax.

Why choose a two-year fixed rate cash ISA?

There are many reasons why you may choose a two-year fixed rate cash ISA, including to:

• avoid paying tax on your savings interest
• earn a guaranteed rate of interest on money you won’t need to access for at least two years
• protect your savings from any changes in interest rates for the next two years
• lock your savings away for a specific goal that’s two or more years away, such as a wedding or house deposit.

How does a two-year fixed rate ISA work?

Two-year fixed ISAs work in the same way as any other fixed rate ISA.

After opening, you may only be able to make one initial deposit into the ISA, with no option to make any further deposits after this point. However, some providers may allow you to add to your savings for a specified period after opening the ISA.

Bear in mind that you can only deposit a maximum of £20,000 into ISAs each tax-year. Read more in our guide to the ISA allowance.

You won’t be able to access your money or transfer to another ISA during the two-year period, unless you’re willing to incur some form of penalty, such as a loss of interest.

At the end of the two-year term, you should hear from your provider about the options you could take. If you do nothing, it’s likely that the provider will move the money from your two-year ISA into a standard variable ISA at the end of the term.

Interest on a two-year ISA can typically be paid monthly, on anniversary or on maturity, but the options available will depend on the provider. You don’t need to pay tax on this interest.

Key features to look for in a two-year fixed rate cash ISA

When selecting a two-year fixed ISA, you should consider the following features:

• The interest rate: The higher the rate, the more interest you’ll earn on your savings.
• Deposit requirements: Providers may specify a minimum and maximum deposit. For example, you may be able to open an account with £1 while others may ask for a higher deposit of £10,000.
• Further contributions: Some accounts won’t allow you to add to your savings after the initial deposit, while others may allow further deposits for a limited period or without restriction. This will be an important factor to consider if you want the option to add to your initial deposit.
• Withdrawal restrictions: Most providers will apply some sort of penalty charge if you want to withdraw your money before the end of the two-year term. This is usually a loss of interest, but it’s worth checking the terms of the particular account.
• Opening and management methods: Whether you prefer to manage your ISA online, by mobile app, by phone or by visiting a branch and banking in-person, you should make sure an account offers your preferred method(s).

Who is the best ISA provider?

When considering how to compare ISAs between providers, there are several points to think about to make sure you get the right account for you.

The interest rate is an important factor, but bear in mind that the ISA provider offering the best rate of interest may not always be the best account for your requirements.

For example, if the market-leading two-year ISA requires a hefty minimum deposit of £10,000 and you only want to deposit £5,000, this won’t be the best option for you.

Similarly, if you want to manage your account in branch but the top account is only available online, the best ISA for you may be one paying a slightly lower rate.

As a result, it’s important to compare ISAs on our charts, looking at the interest rate and any other key features, terms and restrictions to find the best account for you. You may also want to think about the reputation and customer support of the provider when selecting an ISA.

Many of the best ISA rates come from specialist savings providers and smaller banks, not necessarily the big high street names. However, these providers are just as safe as the major brands as they are regulated by the Financial Conduct Authority (FCA) and your deposits are protected under the Financial Services Compensation Scheme (FSCS).

Should I open a two-year fixed ISA?

You may want to consider opening a two-year ISA if you have a lump sum that you won’t need to access for at least two years. Because the rate won’t change during the term, you will receive a guaranteed return on your money, unlike on variable rate ISAs where the rate could go up or down.

However, variable ISAs are likely to be more suitable if you want access to your savings or if you want to make regular deposits into your account.

Two-year ISAs, or any other ISA, are particularly useful if you’re worried about being taxed on the interest you earn on your savings. Thanks to the annual ISA allowance, you can deposit up to £20,000 in ISAs per year without paying tax on the interest.

What would the estimated balance be after 24 months on a £1,000 deposit?

If you deposit £1,000 into a fixed ISA paying 4.40% AER for two years, you will earn approximately £90 in interest.

But the more you deposit, the bigger the return you’ll see. For example, if you deposit your full ISA allowance of £20,000 into a two-year ISA at the same rate, you’ll earn approximately £1,800 in interest.

This assumes you keep your money and the interest earned in the account for the length of the term.

To see how much interest you could earn, visit our savings calculator.

How to open a two-year fixed rate ISA

It should be relatively straightforward to open a two-year fixed ISA. Depending on the provider, you may be able to open an account online, by mobile app, by phone, in branch or by post.

You need to be over 18 years old and a UK resident to apply for an ISA. As part of the application, the provider will usually want to know your name and address, your National Insurance number, your contact details and your bank or building society account details.

You may also need to provide some form of ID such as a driving licence.

When opening an account, you’ll need to make your first deposit, ensuring you meet the minimum requirement set by the provider. Take note of whether this initial deposit is the only one permitted by the provider, or if you’re able to add to your savings after opening.

If you want to transfer an existing ISA to a new two-year fixed ISA, you’ll usually need to do this at the time of application or within a certain number of days. You’ll need to provide details of the ISA you want to transfer, including whether you want to move the full balance or make a partial transfer. Read more on the ISA transfer process.

Can I hold more than one two-year fixed rate cash ISA?

Yes, you can have multiple two-year fixed rate cash ISAs at one time. Thanks to a change to the ISA rules in 2024, this means you can open multiple two-year fixed ISAs in the same tax-year as well as in different tax-years, subject to the annual £20,000 annual ISA investment limit.

See more in our guide to how many cash ISAs you can have.

What happens when my two-year fixed rate cash ISA matures?

When you approach the end of your two-year fixed term, it’s important to decide what to do with your money. Providers will often automatically move the funds in your two-year ISA to an easy access ISA or a new fixed ISA if you do nothing, but this may not necessarily be the best option for you.

For example, if you want to use your savings, you can request to withdraw some or all of your balance at the end of the term.

Alternatively, if you want to keep your money saved in an ISA, you can choose an account to move your funds to, whether that’s with your current provider or a new provider. You could also add to your savings at this point.

Alternatives to two-year ISAs

If you think you’ll need to access your money within two years, you could consider putting your money into a one-year fixed ISA or a fixed ISA with a term up to one-year. These accounts will still pay a guaranteed rate of interest, but for a shorter period.

Or, if you prefer to have the option to withdraw from your savings whenever you need, an easy access ISA or notice ISA may be more appropriate.

If you’re comfortable locking away your money for longer than two years and want to secure a guaranteed return on your money, you could consider a three-year ISA, four-year ISA or five-year ISA.

ISAs are particularly appealing because the interest you earn is exempt from tax. However, you can often find better rates on standard savings accounts, which means they could be a more attractive option if the interest you would earn on your savings is within your Personal Savings Allowance (PSA).

Can you lose money on a fixed rate ISA?

No, your funds aren’t at risk in a fixed ISA, so you won’t lose any money. Assuming you keep your money in the account for the required term, your money should increase in value. However, if you choose to withdraw money before the end of the term, you may need to pay a penalty charge.

Even if the savings provider collapses, you should still get your money back thanks to the Financial Services Compensation Scheme (FSCS). However, it’s important to bear in mind that only up to £85,000 you have deposited across all your accounts with each banking group is protected; if you have more than this saved with a single group, you’re not guaranteed to be compensated for this loss.