Best 4 Year Fixed Rate Cash ISAs

What is a four-year fixed rate cash ISA?

A four-year fixed ISA works in the same way as any other fixed ISA.

You deposit a sum of money into the ISA for a four-year term and, because the interest rate is fixed, the return on your money is guaranteed. And, as with any ISA, you won’t need to pay tax on this interest. The tax benefits of ISAs depend on your personal circumstances and may change in the future.

Some four-year ISAs only allow you to make one deposit upon opening, while others allow you to add to your account for a limited period.

However, it’s important to think about how much you deposit because, if you want to withdraw your money before the end of the four-year term, you will face a penalty. This is usually a loss of interest.

Once the four-year term ends, you can choose what to do with your money. The provider will contact you with some available options and, if you do nothing, your savings will often be moved into a variable rate ISA.

Everyone has an ISA allowance of £20,000 that they can deposit across one or more ISAs each tax-year.

Why choose a 4-year fixed rate ISA?

Some of the reasons you may want to choose a four-year fixed rate ISA include:

• Guaranteed returns. Because your rate is fixed, you’re guaranteed to get the returns you expect. This can provide a great level of security, particularly during times of interest rate fluctuation, as even if rates fall elsewhere, yours will remain unchanged for the full four-year term.

• Tax-free growth. As with all ISAs, four-year versions offer tax-free growth which can make them particularly suitable for those who may use up their Personal Savings Allowance.

• Great for goal-setting. Putting money aside for four years can be ideal if you’ve got medium-term savings goals, such as a deposit for a first home, a wedding or school/university fees for your children. By locking your money away there’s no temptation to spend it, which means you could have a nice nest egg at the end of the term that could go a long way towards meeting your goals.

How does a 4-year fixed rate ISA work?

Four-year ISAs work by asking you to deposit a lump sum of money that must remain untouched for four years. Here’s a closer look at what it involves, from setting it up to how interest payments work.

Setting up the account

• Check your eligibility: When you’re comparing the very best four-year ISA rates, it’s important to check the eligibility criteria. This can include things like location (particularly for building society accounts) and minimum deposit requirements, and make sure to check whether further additions are allowed as well.

• Open the ISA: You’ll need to apply for the account with the provider – make sure to check the opening methods available – which will typically involve filling in an application form where you’ll need to provide all relevant information, such as proof of identity and address, and details of any linked current accounts or ISAs you’re looking to transfer.

• Make your deposit. You’ll normally only have a small window during which you can make your initial deposit. Note some ISAs allow you to make additional deposits during this time, but others won’t, instead expecting your first lump sum to be the sole amount.

Managing the account

You can manage the account via any means offered by the provider – online or app management is often available, though some still ask you to manage via phone, post or in branch. If you need to access your funds (bearing in mind the withdrawal or transfer penalty) you’ll need to notify your provider, and will need to follow specific ISA transfer rules.

Interest payments

Interest is typically paid annually, though you may find other options available, such as monthly, quarterly or on maturity. Check whether interest will be compounded or paid to another account – the former option allows you to benefit from compound interest, while the latter means you could receive a regular income from your savings.

When is a 4-year fixed rate ISA a good idea?

A four-year ISA can be a great idea if you’ve got medium-term savings goals and a lump sum of money you’re comfortable locking away for the full term. It can be particularly suitable if you’ve got substantial savings elsewhere and could therefore breach your personal savings allowance, as you’ll still be able to benefit from tax-free growth.

Suitable for:

• Those who are comfortable locking their money away, and have sufficient accessible savings elsewhere (such as in an easy access account).
• Savers who want guaranteed returns with an interest rate that won’t change for the full four years.
• Those with substantial savings in non-ISA accounts and/or higher rate taxpayers who have limited options for tax-free growth.
  
  

Not suitable for:

• Savers who don’t have a lump sum of money to lock away and instead want to save smaller amounts on a regular basis, in which case easy access or notice ISAs may be more suitable.
• Those who may need to access their funds.

Should I consider fixing for a shorter term?

It’s up to you to decide whether a four-year ISA is right for you, or if you should fix for a shorter term.

It may be worth opting for a short-term fixed ISA if you’re not comfortable locking away your money for as long as four years. You should only consider putting savings into a longer-term fixed ISA if you have sufficient savings to draw on should you face an emergency expense or a loss of income, for example.

You may also want to think about the direction that interest rates could go in the future. If you lock your money away for a long period, you could miss out on a higher rate of interest if interest rates rise.

But, on the other hand, if interest rates fall, locking into a longer-term fixed ISA before they drop could mean you get a better return than if you chose a shorter-term ISA.

Ultimately, if you can afford to do so, it may be worth putting your savings in a combination of short-term and long-term fixed accounts, as well as easy access accounts.

How to choose the best 4-year fixed rate ISA?

Choosing the best four-year ISA relies on careful comparison of the available options. You’ll need to consider the following factors:

• The interest rate will probably be your most important consideration, as over the course of four years, even a small difference in rate could significantly alter the amount you’ll receive in interest. Using the AER is arguably the best way to compare the options; you can find out more in our guide to AER, gross rate and net rate.

• Access penalties. All fixed ISAs will impose some form of penalty for access, but the amount will vary between providers. Typically, you’ll be looking at around a year’s worth of lost interest, but some providers impose a set percentage reduction, and you’ll often be expected to close or transfer the account too.

• Opening criteria. Alongside typical ISA requirements (such as age, residential status and minimum deposits), there may be additional criteria to adhere to as well, such as the need to have a linked current or savings account. Make sure this suits your financial needs.

• Account opening. For savers who don’t have branch access, the option to open an account online or via mobile app can be the key consideration. Use our chart to look for those that have an opening method to suit.

• Provider reputation. It’s important to bank with a provider you trust, and you can check their consumer satisfaction results via the Competition and Markets Authority (CMA). You’ll often find that smaller, challenger banks come out on top in these surveys; find out more about challenger banks and why they’re worth considering.

Alternatives to four-year ISAs

Instead of a four-year ISA, you could consider a five-year ISA. This means you won’t be able to access your money for an additional year, but you will typically have a wider range of accounts to choose from. They may also pay higher rates than four-year ISAs.

Or, if you prefer to lock away your money for a shorter period, you could consider a three-year ISA or a two-year ISA. For an even shorter-term, one-year ISAs are a popular option for savers.

If you want to be able to draw on your savings when needed, there are easy access ISAs and notice ISAs to choose from.