Variable Rate Cash ISAs

Variable rate cash ISAs explained

While they come with more restrictions than non-ISA accounts, variable cash ISAs still offer plenty of flexibility. There are generally two types of variable ISA: notice ISAs and easy access.

Variable rate ISAs with a notice period usually require some advance warning before the bank or building society will let you take the funds out of your account, while easy access ISAs generally allow additions and withdrawals without limit, however there are now an increasing number of providers that restrict how many withdrawals can be made in a year.

This is in contrast with fixed rate ISAs, which typically do not allow any access until a certain period has passed, in exchange for higher and set rates. Even if you find the best variable ISA rate, and this can beat fixed rates, there’s always a chance that it can lessen over time – hence the variable part. While this makes it a gamble, the access options these accounts offer could certainly make it worth the risk.

The main benefit of any ISA is that your savings remain tax-free for as long as they are in an ISA. This means you can accumulate quite a savings pot over time, which may well be able to gain enough interest to breach the Personal Savings Allowance.

Specific reasons to pick a variable cash ISA are if you think rates might increase soon and you don’t want to commit your funds to a fixed rate deal, or if you are approaching the time when you will require the funds – such as when you’re closing in on that all-important first home deposit amount.

Most variable rate ISAs will allow you to withdraw your funds – either instantly or following a notice period. This can make them an appealing option for those who don't want to lose access to their savings. However, withdrawing money and depositing it back into your ISA could affect your annual ISA allowance.

If your ISA is flexible, you can withdraw and replace funds within the same tax-year without affecting your allowance. However, if it isn’t a flexible ISA, any deposit into the account will count towards your allowance, even if you’re replacing money that you’ve previously withdrawn.

Per tax year (which runs from 6 April of one year to 5 April of the next year), you are restricted by the ISA allowance as to what you can put away.

This means that you can put this amount of money into a new or existing variable rate ISA. If you also want to save in a different kind of ISA (say a stocks & shares ISA), you should note that the allowance covers all of them combined. So, if you want to save in both a cash ISA and stocks & shares ISA, you’ll have to decide whether you want to put an equal £10,000 in each account or divide the funds up differently.

While you’re only able to put a certain amount of new money into an ISA per tax year, you are able to transfer your existing ISA funds across providers without limit. So, if you see a better variable rate elsewhere, you should be able to transfer your whole pot over in one go – just be sure to follow the ISA rules, otherwise you might end up getting in trouble. Bear in mind that not all ISAs allow funds to be transferred in, it depends on the provider.