4 Differences Between Fixed Rate Bonds And ISAs That You Should Know About
When people look to save their money in a savings account, they are usually faced with two options – a fixed rate bond or an Individual Savings Account (ISA). Whether you will be better off investing in a bond or an ISA will depend largely on various factors like rate of return, ability to add extra money to the account, and so on. Below, we look at four such major differences between a fixed rate bond and an ISA that you must know about before making an investment decision.
1. Interest Rates
As far as interest rates go, fixed-rate bonds generally tend to provide a higher rate of interest than an ISA. So, on the basis of interest alone, you will be better off choosing a fixed rate bond. However, do consider tax into the calculation. The returns on fixed-rate bonds are subject to tax while ISA accounts get an exemption up to a specific limit. So, calculate the rate of return after the payment of tax when deciding whether fixed rate bonds outperform ISA or not. And if you are specifically interested in investing in 3 years bonds, then consider visiting https://www.best-savings-rate.co.uk/3-year-fixed-rate-bonds for a list of some of the best 3-year bonds in the market right now.
2. Deposit Limits
An ISA will have a strict annual deposit limit that you have to adhere to. You are barred from depositing an amount higher than this limit. And even though fixed rate bonds also have deposit limits, they are usually so high that you can easily save as much money as you want. It is very unlikely that you will ever touch the limit. In addition, some fixed term bonds also come with a very high minimum deposit limit. But as a payoff, you will be paid a higher interest rate for investing in such bonds.
3. Adding Money
With a fixed rate bond, you generally won’t have the freedom to add extra money once you make the initial deposit. In contrast, ISAs offer a restricted ability to add funds. With an ISA, you can add up to £20,000 per year to the account. If you have more money to invest, then you have to wait until the next year when you will again have the allowance of investing another £20,000 to the account. So, for people who are looking to invest more than £20,000 per year, ISAs may not be a good idea. Instead, you should go with a fixed term bond and invest as much as you can as an initial deposit.
4. Multiple Accounts
You can have multiple accounts with fixed-term bonds. There is no limit to how many accounts you can start. With an ISA, though you can have multiple accounts, you will only be allowed to invest in one type of ISA account for a tax year. So, if you decide to invest in an Easy Access ISA this tax year, then you won’t be able to invest in a Fixed Term ISA during this year.