Your money will not grow if the rate of inflation is higher than the interest rate on your cash ISA account – unless it is a fixed-rate ISA. If you have cash that you can lock away for a set period, it is worth considering opening a fixed-rate or fixed-term ISA. With so many to choose from, you can COMPARE NOW for the best fixed-rate ISAs.
Fixed-rate ISA accounts allow you to lock your money away for a fixed-period, ordinarily one, two, or five years. For the specific period, your account will benefit from a typically higher fixed-rate of interest, and the longer the fixed-term, the higher the interest rate.
ISA providers are required to allow you access to your money at any time before the fixed term ends, however, you might have to pay heavy penalties to do so. Therefore, it is advisable to pay extra attention on the terms and conditions of your ISA policy, especially if you are considering a longer fixed-term period.
So it would be wise to invest money that you do not need to access and can afford to put it away for the duration of the ISA term.
Nonetheless, both your money and the interest it earns will be protected from the taxman.
There is no right or wrong answer here, as this will depend on your personal circumstances and how long you can do without the money you wish to lock away. As circumstances can change without warning, a short-term fixed-rate ISA could be an ideal way to earn higher interest over the short term, compared to the easy access ISA. But if you are certain that you will not need to access your savings for a much longer period, then you could earn a much higher rate of interest.
However, if the base rate, the official interest rate set by the Bank of England increases, then your funds will still be locked up at the fixed-rate you would have agreed with your ISA provider, and you won’t be able to transfer it to a higher rate account without incurring a penalty. For this reason, it is best to check your account restrictions.
It is important to note that with every financial decision, there is an element of risk to be carefully considered. If you are in any doubt you should take expert advice from a qualified financial advisor.