I took out a two-year fixed rate Isa: Will it use up two lots of my £20,000 tax-free savings allowance?

I opened Cynergy Bank’s two-year fixed-rate cash Isa with a rate of 4.44 per cent on 5 April, the last day of the 2024-25 tax year. 

I paid in the full tax-free savings allowance of £20,000, giving me a fresh £20,000 allowance for the 2025-26 tax year the next day. 

However, the account is a two-year fix, and I the rules say I cannot withdraw any money in that time. 

Does this mean I have effectively used up my £20,000 allowance for the 2025-26 tax year too?

Or can I open a new cash or fixed-rate Isa for the 2025-26 tax year with the new £20,000 allowance and not pay any tax on the £40,000 altogether?

Please could you explain how it works?

Helen Kirrane of This is Money replies: Firstly, hats off to you for not wasting your 2024-25 Isa allowance – even if it was used at the eleventh hour – and for snapping up the best rate for a two-year fixed-rate Isa.

As you say, this means you’ve seen off your Isa allowance for 2024/25 in one fell swoop and now have a fresh £20,000 limit to use, as the new tax year started on 6 April 2025.

I’m pleased to report that that allowance is still yours to use. 

It is not the case that because you used up your £20,000 on a two-year fixed-rate Isa, that it counts for two years of your Isa allowance.

As is the case with almost all fixed-rate saving accounts, you cannot deposit or withdraw money from them until the account matures, whether it is fixed for one, two or three years.

> Top fixed Isas: Compare the best rates using This is Money’s savings tables

But you still have a new Isa allowance to be used, irrespective of fixed-rate rules, and are entitled to put this elsewhere into another Isa. 

You can spread this across multiple types of Isas, such as cash and stocks and shares, as long you don’t exceed the £20,000 Isa allowance for the 2025/26 tax year.

Since April 6 last year savers have been able to open an unlimited number of Isas. You can even hold multiple versions of the same type with the same provider.

As you are keeping the money within an Isa, it will be completely tax-free.

Rachel Springall, finance expert at Moneyfacts Compare replies: Isas can seem a bit complicated these days, particularly with new rules and an abundance of product types to choose from, so it’s no wonder if people worry about breaching their annual allowance. 

However, there is one firm point: you get a £20,000 allowance each tax-year. 

It doesn’t matter what type of Isa you choose and how long the interest is fixed for. 

Instead it it’s the pot limit that matters, as a combined total under any Isa tax-free wrapper for that specific tax year.

Savers will need to keep tabs on their pots and ensure they never breach their annual allowance.

Investing the full £20,000 for the 2024-25 in a two-year Isa means that the allowance has indeed been maxed out, but it does not matter if the account will pay interest for two years. 

You can still now open an Isa for the 2025-26 tax year, with a £20,000 limit, and this can be spread across different types of Isas, too. 

Isas also can now offer more flexibility, so those that dip into their pots can deposit the difference later down the line during that tax-year, but they must ensure they stay within their yearly allowance. 

So, if someone invests the full £20,000, removes £10,000, they then cannot put more than this back into that tax-year Isa pot. 

Any interest earned on an Isa is tax-free, so that does not count towards their allowance.