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Birmingham Midshires launches 5% cash Isa

Fixed-rate deal offers top rate over five years

Piggy bank with padlock, fixed-rate Isa

Fixing your cash Isa savings may improve your return – but be sure before you tie up your cash

Birmingham Midshires has increased the interest rate payable on its five-year fixed-rate cash Isa to 5% AER, taking it to the top of the Which? Best Rate table.

Beating rivals Northern Rock and Skipton Building Society by offering a return of 0.5% more, the Birmingham Midshires deal is now the best-paying five-year fixed-rate Isa on the market. 

However, the account can only be operated by post – so it isn’t a great choice for those people who prefer to transact via the web, or want to have a branch-based account. 

Transfers of previous years’ Isa savings are accepted into the Birmingham Midshires account, but you can add cash to the account only for as long as it is available to new customers. In addition, you’ll need an initial deposit of at least £500 to open this account.

Is a fixed-rate Isa right for you?

Some fixed-rate cash Isas, like the Birmingham Midshires account, are currently offering considerably higher returns than instant access deals.

However, the longer you are prepared to lock your money away for, the better your rate is likely to be – so shorter-term fixed deals, such as one- and two-year fixed-rate Isas, look less competitive next to the best instant access Isas, which in some cases many offer higher (though variable) interest rates.

You should only opt for a fixed-rate deal like the Birmingham Midshires Isa if you are confident you won’t need access to your savings during the term of the deal – however long it’s set to last. If you need to withdraw your funds before your fixed-rate bond expires, you’ll pay a penalty. This usually means missing out on a substantial chunk of the interest you are due.

In the case of Birmingham Midshires’ five-year fixed-rate Isa, the penalties for early withdrawal are as follows:

  • 365 days’ loss of interest in year one;
  • 320 days’ in year two;
  • 270 days’ in year three;
  • 180 days’ in year four;
  • 90 days’ in year five.

Finding the best cash Isa

Which? savings analyst Jo Langenhan says: ‘It’s good to see an account that comes from a large banking group top our five-year fixed-rate Isa table. This is a great deal for consumers if they are able to tie their money away for this length of time.

‘However, if you’re not happy with giving up access to your money for a fixed period of time, an instant access cash Isa might be the best option for you.’

You can compare different Isa deals by visiting the Which? Best Rate cash Isas review, and find out more about how cash Isas work – including a information on Isa transfers – by reading our How to find the best cash Isa advice guide.

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